The number of ETFs listed on Euronext exchanges rose by 5 percent last year, exceeding 4.000, while the number of investment funds declined by the same percentage to just over 2.300. In the United States, the number of ETFs grew by approximately 15 percent in 2024, reaching 3.920.
The ETF industry is booming, according to figures from exchanges and researchers. Last week, Euronext reported that the number of ETFs listed across its exchanges in Paris, Brussels, Amsterdam, Dublin, Lisbon, Milan, and Oslo increased by 5 percent over the year to reach 4.018 at the end of December. Meanwhile, actively managed investment funds are steadily losing ground. In December 2023, Euronext recorded 2.424 investment funds; by the same month in 2024, that figure had dropped by 5 percent to 2,319.
Number of ETF’s listed on Euronext
Number of investment funds listed on Euronext
“Commercially, ETFs have been a major success,” said Ronald Verhagen, Director of Investment Consultancy at AF Advisors, “and that success cannot solely be attributed to the trend from active to passive investing. More ETFs with active components are being launched, and they’re proving to have a right to exist. Furthermore, an increasing number of ETFs are being introduced in categories other than equities, such as region-specific fixed-income ETFs or crypto ETFs.”
Verhagen welcomes the broadening of ETF offerings. “This allows you to use ETFs effectively for implementing creative strategies in portfolios. You can fill the core with passive instruments while selecting specific active funds around them.”
Volatility
Institutional investors make limited use of ETFs, but they are highly popular in the retail market. However, Eelco Ubbels of Alpha Research, which advises family offices and independent wealth managers, hesitates to label these retail investors as entirely “passive”. “These investors are indeed active, but they consciously choose to generate alpha through asset allocation rather than seeking the best-performing active investment fund,” Ubbels explained. For these investors, the question is not whether they can find a fund that outperforms the average in U.S. equities but whether they should overweight or underweight U.S. equities. “They then choose passive instruments, which also need to be highly liquid: ETFs.”
However, Ubbels believes there are limits to ETF growth. “The fewer active investors there are, the more sensitive the market becomes to the decisions of this smaller group. This could result in unexpected price movements, especially in the least liquid markets or sectors.”
The global ETF market grew from over $10 trillion to more than 13 trillion dollar last year, according to J.P. Morgan data. Still, Verhagen expects that at some point, a “natural balance” will emerge. “Don’t forget, there is net growth now, but not every ETF is a success. Many ETFs are also removed from the market.”
Open-to-close ratio rises
U.S. data shows that the number of ETF launches increasingly exceeds the number of closures. The ETF Think Tank, part of U.S. consultancy firm Tidal, tracks the so-called open-to-close ratio for ETFs on a weekly basis. This ratio, calculated over the preceding 12 months, was 2.0 in January 2024, rose to 3.1 in August, and ended the year at 3.8.
However, American ETFs are better “filled” than their European counterparts. Although the number of ETFs on both continents is roughly the same, the total assets under management in U.S. ETFs is nearly five times greater than in Europe. As a result, the open-to-close ratio in Europe is likely to be lower. Verhagen explains: “A listing costs money, and marketing costs money. If insufficient funds are attracted, the ETF ceases to be profitable for the asset manager. In such cases, closure decisions are made quickly and frequently.”