How ETF trends are shaping market growth and innovation for 2025

Innovation and digital distribution are among the factors fuelling ETF investor adoption.

In brief

• We expect total ETF assets to reach US$4.5t in Europe and US$25t worldwide by 2030
• Product innovation and European retail are two accelerating drivers of future growth
• Amid intense competition, providers need differentiated strategies that map their strengths to market opportunities

Kristy Von Ohlen, EY Americas Assurance Advisory Wealth and Asset Management Leader, and Kyle Frasca (via EY.com Luxembourg), Partner, Financial Services, Ernst & Young S.A. contributed to this article.

Nothing stands still in the world of exchange traded funds (ETFs) and exchange traded products (ETPs), and the industry continues its rapid growth in size, complexity and sophistication. In this article we look back at some of the industry’s major trends in 2024 and offer some views on the outlook for 2025 and beyond.

1. Robust growth is projected to continue

The ETF industry enjoyed exceptionally strong growth in 2024, with total assets under management (AUM) of [US$14.8t] worldwide by [Q4].¹ Positive performance by global equity markets lifted AUM, but record-breaking net inflows – which totalled a staggering US$1.88t for 2024²– were the main driver.

This was underpinned by continuing innovation from ETF and ETP providers, and ongoing investor adoption across multiple markets, investor types, and investment styles. The same fundamentals that have powered the industry’s 30-year expansion continue to attract capital; these include transparency, liquidity, attractive fees, and tax advantages in key domiciles such as the US, Ireland and Luxembourg.

Europe played a key role in driving ETF growth, with total AUM approaching US$2.3t by the end of 2024³ helped by the rapid expansion of online retail savings accounts. In fact, European ETFs grew faster than the US market in 2024, reflecting their underweight position at around 12% of registered funds versus approximately 25% in the US.

The US was also a powerhouse of global ETF growth, with AUM exceeding the [US$10t] mark at the end of 2024.⁴ Other key markets worldwide enjoying continued growth in 2024 included Canada, Japan, Australia, Korea and Taiwan.

Active ETFs are an increasingly important driver of growth. They represent a growing element of European ETF markets, while in the US they make up 8% of ETF AUM and accounted for almost half of net inflows during 2024.

We expect the coming years to see double-digit growth in European ETFs, powered by accelerating retail adoption, lifting regional ETF assets to US$4.5t by 2030. Worldwide, we expect total ETF AUM to reach US$25t by 2030, with inflows boosted by product innovation, technology-driven improvements in efficiency and distribution, growing investor adoption, and expansion into new geographic markets.

2. Product innovation is driving growth and sophistication

The rapid growth of ETF assets goes hand-in-hand with the creation of new ETFs. Asset inflows encourage more ETF launches and launches help to attract more capital. However, it is not feasible for most newly issued ETFs to compete head-on with established, market-leading products. The resulting innovative pressure, accelerated by the advance of technology, is encouraging issuers to push the boundaries of what an ETF or exchange traded product (ETP) can be.

This dynamic is illustrated by the accelerating role of actively managed (active) ETFs, which are currently growing faster than their passive counterparts. Momentum is growing as more managers enter the active space, making this an especially good time for new launches. Active ETFs can provide a wide range of strategies such as thematic, sector-specific or special situations investments, and typically offer better liquidity and efficiency than the equivalent mutual fund. Globally, active ETF AUM exceeded US$1t in September 2024, and it is predicted this figure could reach US$4t by 2030 (pdf).

Regulatory barriers to active ETFs are falling fast, and they now account for the majority of ETF launches in the US, Canada and Australia. In the first ten months of 2024, the US saw 482 new active ETFs listed, compared with 144 indexed ETF launches. Regulatory changes in several jurisdictions are also encouraging active ETFs. That includes Ireland, which has approved mutual fund ETF share classes and amended naming rules for those share classes, while Luxembourg has chosen to remove subscription taxes and daily transparency requirements from active ETFs. These and other changes mean there are fewer factors than ever to dissuade asset managers from launching active ETFs.

The growth in active ETFs is receiving a further boost from investor demand for alternative investments. In the US, for example, Collateralised Loan Obligation (CLO) ETFs (which invest in funds managing portfolios of senior secured loans) have attracted AUM of over US$19b since their launch in 2020. CLO ETFs are appearing in Europe too, with several firms filing to launch these products in key European fund domiciles.⁵

ETFs may even have a role to play in private markets, where vehicles such as semi-liquid funds are already used to increase retail accessibility. Some issuers are looking into the possibility of private credit ETPs, although questions remain over the underlying liquidity of these assets. Applications have been lodged with the SEC for public-private credit ETFs, although consumer groups have questioned whether the proposed arrangement would meet the liquidity and fair value requirements of a “40 Act” fund.⁶

Some other innovations that have attracted attention during 2024 include:

1. Single stock ETFs. These provide leveraged or inverse exposure to an individual high-profile stock, typically a technology giant. As of May 2024, there were more than 50 single stock ETFs in the US market with AUM of over US$7b.7
   
   
2. Buffer ETFs. This relatively new form of smart beta ETFs provide a level of downside protection for investors more concerned about limiting losses than missing out on gains. Total AUM in buffer ETFs totals around US$45b.8
   
   
3. Digital Asset ETPs/ETFs. Spot Bitcoin ETPs have seen tremendous growth since their approval by the SEC in 2024, with the five largest US ETPs reaching total AUM of over $70b by the end of the year. Inflows have benefited from, and possibly reinforced, Bitcoin’s buoyant performance since the US elections in November. In addition to direct exposure via spot products, investors seeking the features of an ETF can choose between Bitcoin futures ETFs or funds holding stocks exposed to digital assets.

Looking ahead we expect investor demand, competitive pressures, and the continuing ability of ETF issuers to harness technology and bring new products to market, to maintain the momentum of ETF innovation.

The pace of change will not always be evenly distributed. For example, although ESG themed ETFs remain likely to enjoy long-term growth – especially in Europe, as younger generations accumulate more investible wealth and the impact of climate change becomes more unavoidable – the immediate prospects for new launches look more muted. Many ETF providers are committed to offering investors a full choice of ESG funds, but headwinds including investor confusion, fossil fuel inflation and geopolitical issues mean that issuers are likely to rely more on pull from motivated investors rather than an active marketing push.

At the other end of the spectrum, rapid advances in a range of technologies promise not only to introduce fresh innovations in ETF access and distribution, but also to encourage the use of tokenization – which, in time, could herald a totally new frontier in the evolution of the industry via instant settlement and digital custody.

3. Increasing growth in European retail markets

ETF providers have long viewed European retail investors as an untapped market. After all, Europe’s population is around 640m, almost double that of the US, and despite the presence of large US providers, ETFs only make up 10%-15% of the retail investment market compared with around 40% in the US.

Today, there are growing signs that this crucial market may have reached a tipping point. Although many providers are still relatively inexperienced in targeting retail investors, a combination of industry promotion, positive publicity and increasing accessibility are driving greater take-up of ETFs among European retail investors.

Momentum is strongest among younger investors. Accelerating rates of inheritance among these cohorts, who are less likely to favour traditional investment channels, is one factor. However, it’s the role of digital platforms that is proving decisive. Compared with older generations, Millennials and Gen Z are more self-directed, spend more time online, and are more likely to seek investment tips from financial websites, internet forums and online influencers.

As a result, digital platforms operated by brokers, neobanks and FinTechs are making inroads, supported by marketing campaigns targeted at 18–25-year-olds. It’s estimated that 3 in 4 young investors now hold an ETF (pdf). Online savings plans (OSPs), though still novel in many markets, have become an increasingly significant driver of ETF investing. OSPs allow individuals to make a regular purchase of ETFs at a predetermined amount, often in conjunction with the investor’s bank or credit card provider.

OSPs have grown dramatically from a low base, creating valuable new distribution partners for ETF providers. Across Europe, the total number of OSPs grew from 7.6m to 10.8m over the course of 2024 (pdf). Germany is the leading market by far, but a range of local and international providers are also offering OSPs in markets including the UK, Ireland, Austria, Italy, Spain, Switzerland, Denmark and Sweden. Providers launching OSPs include neobanks, online brokers, and traditional banks acquiring neobrokers.⁹

The growth of OSPs is projected to accelerate, with one recent study predicting that Europe could see 32m investor accounts holding €650b in ETF assets by 2028 (pdf). The user-friendly digital platforms offering OSPs are boosting accessibility and often charge lower fees than traditional investment brokers. Many provide educational resources to help investors understand ETF investing, and some are integrated with robo-advisors to offer holistic, automated investment solutions. Set against that, the associated marketing expenses can be significant for ETF providers.

For now, European ETF investing remains heavily tilted towards the institutional segment. Even so, the prize of retail adoption is getting closer – and bigger. It’s especially appealing to newer ETF providers, since a lack of track record is less of an obstacle than among institutional investors. The challenge now for ETF issuers and brokers is to pick the investors and territories they wish to focus on, and to develop cost-effective strategies to enter or scale up in those markets. Getting ETF structuring, promotion and distribution right will be vital to maximizing returns on expenditure – and capturing the upside of European retail growth.

4. ETF market entry routes are becoming clearer

Growing levels of ETF AUM and the increasing range of product options are attracting new entrants to ETF markets in the US, Europe and beyond. Asset managers, ranging from the world’s largest firms to far smaller niche operators, are exploring the potential benefits of ETFs. Interest in becoming an ETF provider is especially strong among mid-tier asset firms, many of which face growing profitability pressures and have little or no ETF experience.

Most firms seeking to enter the ETF market can choose between five possible routes. Intense competitive forces and profitability pressures mean that new entrants should carefully consider the practicalities of each route – including cost, speed, skills, technology and regulation.

• Build. There are many reasons why firms choose to build their own capabilities as an ETF issuer. Many of the hundreds of active ETFs launched in the US during 2024 were “siblings” of successful mutual funds, for example. The time, money and resources involved mean that this route is often attractive to large firms keen to develop permanent ETF expertise, to exercise complete control, and to leverage existing distribution networks.
  
  
• Buy. Acquiring an existing issuer, either to gain a foothold in the industry or to enter a new ETF market, is one potential solution for firms seeking an instant footprint - and with sufficient capital to make this expensive option a possibility.
  
  
• Partner. White label ETF providers allow firms to launch ETFs fast, and to dip their toe in the market without the capital commitment of building the necessary infrastructure. It’s appealing for firms with limited budgets, and for those seeking a limited ETF trial. However, it’s essential to understand the respective roles of managers and white label providers. White labeling can limit day-to-day control and the growth of in-house expertise, and managers remain responsible for selling and distribution. Bilateral collaboration with specialist partners, such as an alternative investment manager, may also be a possibility.
  
  
• Convert. The number of mutual fund to ETF conversions is rising each year, climbing from 15 in 2021 to 57 in 2024 (pdf). Investors can enjoy liquidity, cost and tax benefits, while conversion can help issuers to increase net inflows. However, it’s worth noting that, where mutual funds are held within tax efficient wrappers such as a 401k, ETF conversions may only provide limited tax advantages.
  
  
• ETF share classes. European regulators including those in Ireland and Luxembourg now permit mutual funds to create ETF share classes. Although not currently permitted in the US, more than 30 issuers including several industry leaders have filed applications for multi-share class structures (both active and passive) since the expiry of a separate ETF share class patent in 2023. These structures can help to achieve economies of scale, but there is also potential for investor confusion, more complex reporting, reduced tax advantages, and “cash drag” on ETF shares.

Asset managers choosing between possible market entry routes should begin by thinking carefully about their existing profile, capabilities, strengths and weaknesses. They must also ask key questions about their strategic goals – such as which markets they want to enter, how much they want to spend, and how quickly they want to achieve results. A strong understanding of the ETF ecosystem is vital too. New entrants often fail to appreciate:

• the importance of strong capital market links to a successful launch
• the time and effort required to build the authorized participant relationships that are crucial to long-term growth
• the need for ETF-specific expertise in management, distribution, reporting, valuation and administration
• the complexity of regulatory landscapes - especially in Europe, where issuers face multiple listing requirements

Finally, firms need to ensure that their ETF market entry plans are aligned with wider strategies and the fundamentals of their business model. Providers should be ready to explain why they are choosing to launch ETFs; how this complements the rest of their business; what it means for their branding; and why they expect ETF issuance to have a positive long-term impact for investors.

ETF markets may offer attractive growth opportunities, but they are also highly competitive and increasingly specialized. Knowledge, planning and execution across a wide range of capabilities are vital if market entry strategies are to deliver lasting success for new ETF issuers.

Conclusion

The ETF industry enjoys a robust outlook for future growth, but it’s clear that ETF markets are in a very different phase of evolution than just a few years ago - as outlined in our 2022 market ETF overview. Product innovation is advancing rapidly, and distribution channels are becoming more varied. These trends, allied with the growing power of technology, are increasingly blurring traditional dividing lines between active and passive, retail and institutional, mutual funds and ETFs.

The ongoing influx of new ETF providers and platforms is further strengthening competition, complexity and specialization in ETF markets. That’s good news for investors. It also means that this is the perfect moment for existing ETF providers to expand, and for those not yet in the market to enter the ETF industry.

However, what worked yesterday may not work tomorrow. Competitive pressure is intense, and the “ETF playbook” for issuers and brokers is being constantly revised. To differentiate themselves and succeed, ETF providers – whether new or established – need to develop robust strategies, backed up by strong execution capabilities.