Despite European ETF market decline in 2022, positive inflows and sustained investor demand mean growth forecast from this year onwards

• Europe’s exchange-traded funds industry saw an 11% fall of net assets in 2022 but the sector still reported inflows for 10 out of 12 months and is expected to achieve 12% average annual growth over the next five years
• The European ETF market is poised to reach US$1.7tn in value by the end of 2023, and US$3.1tn by 2030
• The European ETF market leads globally on sustainability, with ESG ETFs now representing 19% of the total market 

Following an 11% fall in assets under management (AUM) last year, growth in the European exchange-traded fund (ETF) market is expected to rebound over 2023, reaching US$1.7tn by year end, according to latest EY  European ETF research and analysis. This predicted growth is set to continue, and the European ETF industry is expected to report an annual 12% increase in value over the next five years, reaching in excess of US$3.1tn AUM by 2030.

The research – which analyses performance, models growth predictions, and incorporates the views of issuers managing over 60% of the European ETF market – found that the main areas of focus for the year ahead are on making ESG progress, increasing the adoption rate of online channels as a distribution method, and the development of the active ETF space.

Lisa Kealy, EY EMEIA ETF Leader, comments: “The European ETF industry was operating in very challenging circumstances last year, but it appears the decline in AUM values will be a blip, with a return to growth forecast from this year onwards – provided market conditions continue to improve.

“Looking out to the year ahead, market competition is expected to intensify as new providers enter the market and the benefits of tech investment to achieve scale and digitize the distribution channels sets in. Continued investment in innovation, which is integrated throughout the business, will be crucial to ensuring that providers can meet an ever-growing range of customer needs and attract an ever-wider range of investors, while not ceding market share.”

ETF industry progresses ESG activity as it drives more responsible investing

Sustainability continues to grow in importance within the ETF industry, which is reporting continued inflows into ESG ETFs. The research found that ESG is now a core consideration for business leaders, investors, stakeholders and end consumers across Europe, and is no longer perceived as a niche product. 

Since 2018, US$403bn has been invested into global ESG ETFs. While this is not insignificant, it still only represents 4% of the global ETF industry, illustrating the huge potential for growth.

Europe leads the global market on ESG ETFs. In 2022, ESG ETFs constituted 19% of the European ETF market and accounted for 65% of the region’s inflows. 

ETF managers increase adoption of online channels as a distribution method

The past year recorded growth in the adoption rate of online channels as a distribution method for ETFs across Europe, and this is forecast to continue across 2023. It is expected lead to an uptick in retail investing and should help smaller players achieve growth in a marketplace where larger firms dominate because of their economies of scale.

Slowdown of digital assets products for ETF market

Despite a fall from the peak of the digital assets market in 2021, interest within the ETF market remains strong and product providers are preparing for a return to growth this year. In 2022, the number of digital assets exchange-traded products (ETP) doubled from 80 to 166. ETP digital asset investors, who are largely institutional-focused, continued to invest in these products last year, with net inflows in the 11 months to November 2022.

Hermin Hologan, EY EMEIA Wealth & Asset Management Leader, comments: “The industry’s focus on digital innovation to transform distribution channels will serve it well as it strives for growth in a challenging macroeconomic environment. Taking control of the digital agenda and remaining at the cutting-edge of digital asset innovation means ETF providers will lay strong foundations for more sustainable profitability and remain at the fore of tech progress.

“As all businesses look to achieve greater sustainability and greener supply chains, ETF managers must ensure both passive and active funds are ticking the boxes investors are increasingly demanding. Investors’ appetite for more sustainable products and services is only expected to rise and the smart firms will be those increasingly incorporating this into all aspects of their business models.”

ENDS

Notes to Editors

• The raw data used comes from Morningstar and is overlain with EY analysis and insights
• The data was collected between November 2022 and January 2023