The European ETF market is set to hit $4.5trn by 2030 fuelled by new providers entering the market and the rise of retail investing, according to EY research.
The consultancy projected that the market – which currently houses $1.8trn in assets under management (AUM) – will more than double over the next five years, growing at an annual rate of 15%.
It is almost a 50% increase on the $3.1trn forecast by the consultancy last year.
Lisa Kealy, EMEIA ETF leader at EY, said: “We expect increasing numbers of new providers to enter the market and capitalise on active ETF flows and for an uptick in retail investment in the sector.
“Investment in, and integration of, new tech will be crucial for all providers as they look to attract investors and meet their ever-changing and growing needs.”
The research noted active ETFs have also been a huge growth driver, alongside providers sharpening their focus on increasing retail adoption and realising the benefits of artificial intelligence and digital assets.
Active ETFs have been cementing their position in the European ETF market throughout 2023.
An ETF Stream and JP Morgan Asset Management (JPMAM) survey found 40% of the 66 professional investor respondents plan to increase their allocations to active ETFs while a further 30% use active ETFs and will maintain their positions.
Furthermore, the rise of retail investing across the continent has also been giving the market a huge push, largely underpinned by growing investments in ETF savings plans.
Research conducted by BlackRock and extraETF found there will be 32 million ETF savings plans executed monthly across Europe by 2028, up from 7.6 million in September 2023.
EY also found that more than 70% of European ETFs were domiciled in Ireland in 2023, with ETFs in this jurisdiction forecast to exceed $3trn in AUM by 2030.
Ireland's lead over Luxembourg as the top domicile for UCITS ETFs has been bolstered by the Ireland-US double taxation treaty, which subjects US equity ETFs in Ireland to a 15% withholding tax on dividends versus 30% in Luxembourg and other jurisdictions.
French asset managers including Amundi and BNP Paribas Asset Management opting for Ireland over Luxembourg in recent years underscores the Emerald Isle’s appeal for domiciling ETFs.
The research also expects ESG to be a growth area for ETFS over the next few years, noting it accounts for just 19% of the European market.
Hermin Hologan, EMEIA wealth and asset management leader at EY, said: “On the sustainability side, ETF managers need to keep a sharp focus on both passive and active funds, ensuring they are keeping up with investor demands and clearly communicating activity.
“Investors’ appetite for more sustainable products and services is on the up, and the most savvy firms are those increasingly incorporating all elements of E, S, G into their businesses.”
