Despite a significant fall in AUM last year, Europe’s ETF market is poised to experience stellar growth in 2023 and beyond, according to global consulting firm EY.
Europe’s ETF industry ended 2022 with approximately $1.4 trillion in AUM, representing an 11% decline in AUM over the year.
EY notes, however, that the fall in AUM was attributable primarily to falling asset values with the industry still reporting net inflows for 10 out of 12 months in the year.
According to EY, Europe’s ETF industry is expected to reach $1.7 trillion by the end of 2023 and could surge to as much as $3.1 trillion by 2030, representing 12% average growth per year.
As well as analyzing performance and modeling growth predictions, EY’s research incorporates the views of issuers managing over 60% of Europe’s total ETF AUM. It found that the main areas of focus for issuers in the year ahead are further ESG product development, increasing the adoption rate of online channels as a distribution method, and the development of the active ETF space.
EY notes that $403 billion has been invested in ESG-tailored ETFs globally since 2018. While this figure is clearly not insignificant, it still only represents 4% of the global ETF industry, highlighting the potential for further growth. Europe leads the world on ESG ETF adoption, however, with socially responsible ETFs constituting 19% of the region’s total ETF AUM and accounting for 65% of inflows last year.
On distribution methods for ETFs, 2022 recorded significant growth in the adoption rate of online channels across Europe, and this is forecast to continue in 2023. EY believes this will 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.
Commenting on the research, Lisa Kealy, EMEIA ETF Leader at EY, said: “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.”
Hermin Hologan, EMEIA Wealth & Asset Management Leader at EY, added: “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.”