Europe's exchange-traded funds market to grow by 25%

Exchange-traded funds are a type of investment fund that can be traded on stock exchanges

Exchange-traded funds own financial assets or commodities and their value can fluctuate based on the value of their holdings. File picture

The value of exchange-traded funds (ETFs) in Europe are expected to surpass $2.8 trillion (€2.67tn) due to a rise in retail investors and changing regulations, a new report by US financial services firm State Street has said.

ETFs are a type of investment fund that can be traded on stock exchanges. These funds own financial assets or commodities and their value can fluctuate based on the value of their holdings.

According to the report, the European ETF market is expected to grow by 25% in 2025 driven by retail adoption as an investment tool, continued evolution of active ETFs, and expected regulatory developments. The report anticipates that 400 new ETF products will be launched in Ireland this year.

European ETF market flows had decelerated since the pandemic but last year the market bounced back to a new record level of inflows - $270bn. This was close to 40% more than the previous record.

“The market fragmentation of 25 jurisdictions and 29 exchanges is in the process of modernization with the advent of a consolidated tape. We expect to see an expansion of local and global managers entering the European ETF marketplace, offering more choice and innovation to the market,” the report said.

State Street said the anticipated growth in Europe aligns with a global surge in ETF adoption, which saw a record $1.9tn in inflows last year, bringing total ETF assets to $14.7tn.

The report said that Ireland is a “key player” in the European ETF ecosystem housing over 72% of European ETP assets.

“Ireland’s regulatory landscape is set to evolve further in 2025, with potential adjustments to active ETF transparency requirements aligning more closely with Luxembourg’s approach. This shift could encourage more asset managers to enter the European market, driving competition and innovation,” State Street said.

Ken Shaw, Head of ETF Solutions for Europe, the Middle East, and Africa at State Street, said the “projected 25% expansion in total European ETF assets to over US$2.8 trillion reflects increasing retail participation, the rise of active ETFs, and regulatory shifts enhancing flexibility for fund managers”.

"Ireland’s evolving regulatory environment, particularly around share class naming conventions and ETF portfolio transparency, could spur further innovation and competition, reinforcing its position as a leading ETF hub,” Mr Shaw said.