Passive is Massive

The European exchange-traded fund (ETF) market celebrates its 25th anniversary this year, and during that time a momentous growth story has taken place. In recent years European ETF assets under management (AUM) have soared with a 133% increase recorded in the last five years. Globally, the ETF space has expanded significantly, with over 12,000 funds listed as of May 2024, and although Europe accounts for only 12% of registered ETFs versus North America’s 25%, its growth in 2024 outpaced that of its transatlantic counterpart, signalling growing investor demand.

The most recent turbo-charge in the growth story is fuelled by active ETFs which are rapidly gaining traction in Europe, tripling inflows to €19.1 billion in 2024 and accounting for 7.7% of total ETF flows [1].

The push for growth

ETFs are transforming fund managers’ strategies as they respond to investor demand for low-cost, transparent, and flexible products. Carne’s Change 2025 report reveals that 97% of equity and fixed income fund managers view ETFs as critical to their organisation’s future, with 69% identifying them as a key growth driver. Currently, 89% of managers offer ETFs or exchange traded products (ETPs), and those who don’t, plan to launch them within the next few years.

ETFs comprise 10% to 15% of AUM for three-quarters of fund managers, with expectations for higher allocations in the coming years. The momentum behind the rising AUM apportioned to ETFs reflects institutional investor appetite - increasingly adopting ETFs as core portfolio holdings as opposed to short-term asset allocations, with 82% affirming this shift.

ETFs get active

Most recently, active ETFs are revolutionising the market. Assets in European active ETFs totalled €54.4 billion by the end of 2024, up from €29.6 billion in 2023 [2]. These products, offered by leading asset managers like JP Morgan Asset Management, BlackRock, and Janus Henderson, allow portfolio managers to make discretionary decisions that aim to outperform benchmarks or achieve specific objectives.

Investors are drawn to active ETFs for their potential to deliver tailored exposure and opportunities for excess market returns. Many active ETFs focus on themes such as ESG, healthcare and innovation, while others implement risk-managed and volatility-reduction strategies, the latter being an increasingly desirable benefit when the only certainty is uncertainty. This flexibility supports a growing appetite for specialised solutions, allowing fund managers to branch out in terms of the asset classes they’re exposed to.

Regulatory reforms, including updates to the UCITS framework, are helping active ETFs to flourish by enabling access to a broader range of assets.

Retail therapy

The growing appetite for ETFs doesn’t stop with institutional investors. ETFs are gaining ground among retail investors, thanks to innovations like low-cost ETF savings plans. These plans offer young and inexperienced investors an easy entry point, with over 10.8 million plans launched across Europe – a 42% increase in a single year [3]. 

Getting to market: A new ecosystem

Launching an ETF in Europe offers lucrative opportunities but comes with regulatory and logistical challenges – after all, this is a highly competitive space and product launches require careful execution. Carne’s Change report shows a significant increase in outsourcing the ‘non-core’ yet critical functions when bringing ETFs to market. Nearly two-thirds (64%) of fund managers rely on third-party providers for selecting service partners, while 63% use external support to establish UCITS legal structures. Furthermore, over half outsource legal documentation preparation and regulatory filings.

As the outsourcing trend continues, one thing has become clear: getting to market requires planning and is a process which involves taking the time to understand the resources available to help. We have seen a rise in outsourcing the entire management company operation, outsourcing other critical functions, or using an ETF issuance or white label platform. All these options help to streamline launches and bring funds to market faster by handling regulatory, operational, and backend processes.

Conclusion

The figures speak for themselves: 2024 was the strongest year on record for Europe’s ETF market. ETFs are evolving beyond passive strategies, with active management driving growth and innovation. For fund managers, active ETFs present opportunities to expand into new asset classes, innovate, and capture investor interest. Crucially, their flexibility and liquidity allow greater agility for investors to respond to market conditions - making them an attractive option in times of volatility.

A supportive regulatory environment ensures active ETFs can thrive, while third-party service providers are essential for efficient market entry and governance. As competition grows, only the savviest operations and highest standards will define the future leaders of this dynamic industry.

Jungle music was a sub-category, a genre born from a heady confluence of other influences. So too were ETFs. Although ETFs only account for a small slice of the overall market, their relative growth shows they are standing the test of time – and responding to what investors want in a changing world.

ETFs are offering consumer choice in volatile times. Whether Jungle is still as popular remains debatable. But in my case at least, it’s given rise to some great dance moves.

[1] Morningstar, European ETFs Attract Record Inflows in 2024

[2] Morningstar, Europe Open-End and ETF Flows — Q1 2025

[3] Blackrock, The ETF Savings Plan Study 2024