In the first four months of this year, a record number of new ETFs entered the market, with active index funds being particularly popular. “All active asset managers in Europe will switch to ETFs within the next ten years.”
According to data from research firm ETFGI, 847 new ETF products were launched globally over the past four months, spread across 266 providers. At the same time, 179 index products disappeared from the global offering. This resulted in a net increase of 668 new products, surpassing the previous record of 563 during the first four months of 2022.
The United States saw the largest increase with 319 new ETFs. In the Asia-Pacific region, 270 were launched, and Europe accounted for 116.
In response to these figures, asset manager DWS noted that the increase in the number of new products is partly technical. Several existing products, including traditional investment funds, were “converted” into active index products. “In the United States, for instance, this comes with certain tax advantages compared to mutual funds,” said Michael Mohr, head of Xtrackers ETF development at DWS, in an interview with Investment Officer.
Mohr also sees a resurgence of synthetic products and ETCs tracking cryptocurrencies, in addition to thematic investments. Many bond products also mature at the end of the year. “During the year, new bond ETFs with different maturities are then launched,” said Mohr.
Many new active ETFs
By far the most popular have been active ETFs: according to ETFGI, no fewer than 415 were introduced in the past four months.
Europe, in particular, is seeing a surge in active ETFs, as shown by data from provider ETFBook. In 2024, 22 percent of newly launched ETFs were active products. So far this year, that figure has already risen to 33 percent. A large portion of the eighteen providers in Europe offer only active ETFs.
Active vs. passive
Arnaud Llinas, former head of ETF, Indexing & Smart Beta at Amundi and now an advisor at ETFBook, expects all active asset managers with UCITS funds to transition to ETFs within the next ten years. “It’s the only way to benefit from capital inflows coming from the digital generation,” Llinas told Investment Officer. “Once you’ve purchased an exchange-traded index fund, you’ll never go back to a mutual fund, partly due to unclear pricing structures, lower liquidity, and higher fees.”
Llinas believes it will be very difficult for mutual funds to appeal to millennials. “They all invest through apps from online brokers and neobanks, many of which don’t even offer mutual funds.”
Cannibalization
Due to the rapid growth of active ETFs, it’s often suggested that ETFs are increasingly cannibalizing mutual funds, according to Mohr of DWS. “But I don’t believe that’s the case. We expect active ETFs to be used more as a vehicle by traditional fund providers to give a broader range of investors access to active asset management—particularly through online brokers.” Both experts agree that this shift will especially impact traditional distribution channels, such as banks that only offer mutual funds.
Unlike Llinas, Mohr does not expect all active asset managers with UCITS funds to switch entirely to ETFs. The DWS expert envisions both products continuing to coexist. “We’re more likely heading toward a situation where there are two versions of a fund—one that is exchange-traded and one that is not. Traditional mutual funds won’t disappear entirely, but the growth of new funds will definitely be outpaced by the growth of new ETFs.”
Significant growth in assets under management expected
Research by PwC in early March already indicated that the ETF industry is likely on the brink of even greater expansion in the coming years. Nearly one-third of respondents in the study expect that by 2029, around 30 trillion dollars will be invested in ETFs globally—almost double the current amount—with a compound annual growth rate of over 18 percent. However, a majority of respondents expect slightly slower growth of 15 percent. ETFBook also bases its forecasts on this latter percentage. For Europe, this would mean that ETF assets under management would double to 5 trillion euros.