The European market for actively managed ETFs is poised to grow with institutional investors driving demand, according to Cerulli Associates.
Justina Deveikyte, Director of European Institutional Research at Cerulli Associates.
“Institutional investors – pension funds, insurers, sovereign wealth funds, and nonprofits – are likely to be the main drivers of new business for actively managed ETFs in the short term,” said Justina Deveikyte, Director of European Institutional Research at Cerulli Associates.
Compared to the US, Europe’s actively managed ETF market is relatively small, consisting of 49 funds collectively housing €15.8 billion in assets, according to Morningstar data as of the end of June 2021.
With Europe’s total ETF industry housing some €1.17 trillion at the end of June, actively managed funds represent just 1.3% of the entire market.
Despite their small share, actively managed ETFs gained a decent share of new inflows in the first half of the year, gathering approximately €3bn in net new assets.
According to Cerulli, net inflows were driven by investors seeking alternatives to mutual funds with actively managed ETFs combining the benefits of a well-diversified portfolio with the advantages of the ETF wrapper, including trading flexibility and cost-efficiency. Ultra-short bond ETFs, in particular, experienced notable demand as investors braced themselves for interest rate rises.
Cerulli notes that a growing number of asset managers are launching ETF versions of their actively managed mutual funds in order to provide investors with a wider range of investment options. However, the quality of the underlying active strategy may be more important than the size of the manager in determining whether a recently launched active ETF will generate interest from investors.
Deveikyte said: “Smaller managers are applying their in-house expertise in active management and knowledge to ETF strategies. This can help them gain assets across the fixed income market and in areas such as environmental, social, and governance (ESG) investing in the equity market.”
Over the next 12 to 24 months, Swiss and UK-based issuers are most optimistic about the future growth of active ETF assets with 15% predicting an increase in excess of 10%. Meanwhile, Spanish, French, and Italian issuers were the most pessimistic with approximately 17% of issuers from each country believing that the segment would not show any expansion.