European investors’ appetite for actively managed ETFs is growing as the usefulness of these tools in portfolio management gains wider recognition, according to the September 2022 issue of The Cerulli Edge—Global Edition.
Fabrizio Zumbo, Director, European Asset and Wealth Management Research, Cerulli.
Morningstar data shows that assets held in actively managed ETFs in Europe have more than doubled since 2018, rising from €7.4 billion to €16.0bn at the end of July 2022.
Yet active ETF assets account for just 1.2% of the €1.3 trillion European ETF market, suggesting a significant opportunity for further growth.
Fabrizio Zumbo, Director, European Asset and Wealth Management Research, Cerulli, said: “There are indications that investors in Europe are starting to look more closely at active ETFs as they can offer the best of both the passive and the active worlds.
“Active ETF strategies are particularly well suited to helping investors build out the ‘strategic core’ of their portfolios, and some of the biggest mutual fund managers have entered the European ETF space in the past few years in a bid to find a more appealing ‘differentiation’ to their value propositions.”
Cerulli’s analysis of the Morningstar data shows that fixed income strategies dominate assets in Europe’s active ETFs, accounting for 61% of the segment’s total AUM. Equity strategies, in contrast, make up 27% while money market products represent 10%.
Zumbo added: “Active fixed income ETFs could see further growth, particularly given that liquidity concerns during the coronavirus pandemic proved unfounded with the structure holding up well during the sell-off that initially hit markets.”
Cerulli also highlights that European investors’ greater focus on environmental, social, and governance (ESG) products are also significantly influencing flows. ESG-labeled funds are currently amongst the biggest active ETFs in the region and include the likes of the €765m JPM Global Research Enhanced Equity ESG ETF and the €864m Ossiam ESG Shiller Barclays CAPE US Sector ETF.
Despite the bullish outlook for the segment, Cerulli notes that in the short term, market uncertainty and weaker economic conditions have caused flows into active ETFs to slow. Additionally, the firm believes the war in Ukraine and the increasing likelihood of a recession in the region may leave active ETF strategies at a disadvantage in terms of accessing commodities, venture assets, or unlisted opportunities.
Furthermore, Cerulli notes that active ETF providers should boost their financial education efforts and launch marketing campaigns to improve retail investors’ understanding of the benefits of such products.
Nonetheless, despite these challenges, Cerulli believes that as investors in Europe build a greater understanding of active ETFs, the product range will widen, helping to fuel further growth in the space.