A recent Funds Europe roundtable in London considered not only the impact of active ETFs and the technicalities of operating them, but also how emerging trends in the US might point to where European ETFs will go in the coming decade.
The deepening appeal and impact of the investment vehicles formed the focus of the roundtable, where investment professionals discussed which distribution channels have ETFs gained the most traction in Europe over the past quarter of a century.
Once embraced primarily by institutional investors, ETFs have now made significant inroads into virtually every distribution channel.
But when it comes to the question of where ETFs have gained the most traction, experts agree: institutional and discretionary channels laid the foundation, but digital platforms and retail adoption are now leading the charge.
This broadening of ETF usage reflects a major shift, particularly in Europe, where retail investors were once less familiar with the structure, said Roxane Sanguinetti, ETF trading & market making specialist at consultancy firm Alimeia Ventures. “Thanks to more education tools we’re catching up on the retail front.”
Institutional investors were early adopters of ETFs, often using them for tactical allocation or as a liquidity tool.
Manooj Mistry, chief operating officer at ETF provider HANetf and a veteran in ETF product development, recalled: “In the early days we used to say ETFs were a substitute for futures—but that wasn’t quite true back then. It was too expensive and illiquid. That’s changed. Now, ETFs can even be cheaper than futures in some cases, and that’s driven more usage across the board.”
But the biggest inflection point in recent years has been the rise of digital investment platforms. “ETFs have penetrated new distribution channels —platforms, neobanks —where people are buying investments from their phones,” Mistry said. “This digital access is a huge driver of growth.”
Deborah Fuhr, a pioneer in the ETF space and founder of ETFGI, agreed that ETFs have become ubiquitous across distribution models. “ETFs are no longer confined to just institutions or sophisticated investors,” she said. “They’re being used by financial advisors, retail investors, robo-advisors—you name it. The convenience and transparency of the ETF wrapper has universal appeal.”
The rise of active ETFs has also opened new doors. While passive ETFs remain dominant, many managers are now entering the ETF space through active strategies. “On the active side, I don’t feel it’s quite there yet,” said Hannah Evans, head of manager research, Omnis Investments, “It’s newer.” Still, signs of rapid growth are emerging.
Sanguinetti cited JPMorgan’s expansion as an example: “When they started, growth was gradual – but in the last couple of years, AUM growth has gone through the roof.”
This trend reflects broader urgency in the asset management industry. “Many active managers are desperate to raise assets,” Mistry explained. “If the only time your AUM goes up is when markets rise, that’s not a sustainable story. ETFs are the answer for many.”
Tony O’Brien, chief commercial officer at US Bank, emphasized the practical considerations that make ETFs so attractive across different investor types. “It’s really about efficiency,” he said. “ETFs offer real-time pricing, lower costs, and more flexibility. Whether you’re a fund selector, portfolio manager, or individual investor, those are universal advantages.”
The Covid-19 pandemic also played a crucial role in breaking down barriers – especially in fixed income.
“We proved that ETFs were a good proxy for pricing when everything else was frozen,” said Sanguinetti. “Even long-only equity or fixed income portfolio managers, who thought ETFs were only for retail, had to admit their value when it comes to efficiently managing their portfolio.”
“We still do a lot of hand-holding, especially for mutual fund managers coming into ETFs. Even the language needs to evolve.”
Caroline Baron, head of ETF distribution EMEA, Franklin Templeton, noted the gradual cultural shift. “ETFs used to be taboo,” she said. “Managers wouldn’t admit to using them because the tool was perceived as not sophisticated enough and too “easy” to use.
“Now it is becoming more normalised as investors see the various benefits and usages of ETFs, even if some still hesitate to share externally that they use ETFs for portfolio construction investing.”
“In France, ETFs are called ‘trackers,’ implying that all ETFs “track” an index potentially. This term may be misleading for actively managed ETFs where those ETFs no longer “track” an index but merely focus on delivering a discretionary strategy looking to deliver alpha. . ETFs are then a wrapper which can be used to deliver various strategies, indexed or active.”
Fuhr, widely regarded as one of the grandes dames of the ETF industry, echoed that sentiment. “We’re still in a stage where many investors don’t fully understand the mechanics,” she said. “We need more clarity around what ETFs are—and what they’re not. That will help unlock the next wave of adoption.”
So where have ETFs gained the most traction? Initially, it was the institutional and discretionary channels that led the way. Today, however, the real momentum is in digital-first retail distribution and among active managers eager to remain competitive.
As new investors come online, and as education continues to bridge knowledge gaps, ETFs are set to continue their steady expansion- proving that a once-niche wrapper now holds centre stage across the investment spectrum.
As Baron concluded: “People are still discovering this tool – 25 years in.”
Rise of active ETFs in Europe
The high-level seminar then considered whether active ETFs are likely to be the next dramatic evolution of the ETF in Europe and how this evolution is currently playing out in the US.
The central question debated was whether active ETFs represent the next dramatic evolution of ETFs in Europe and how this evolution is currently playing out in the US. The participants explored regulatory, cultural, and technological factors, drawing comparisons between regions and reflecting on both historical and forward-looking trends.
Fuhr began by highlighting the relatively modest global penetration of active ETFs, stating, “Right now active ETFs are probably like 7% of the market globally.” However, she pointed out that this figure varies significantly by region, noting, “In Canada, it’s like 33%.” Fuhr emphasized the critical role of regulation in shaping ETF markets. In Japan, for instance, she noted that legislation initially defined ETFs strictly as index products, requiring regulatory changes to accommodate active ETFs.
Fuhr traced the historical scepticism around active ETFs back to their US origin, referencing Bear Stearns’ launch of the first active ETF in 2008 with the ticker “YYY,” humorously adding that most people at the time questioned, “Why do we need active ETFs?”
The US as a driving force
Much of the discussion acknowledged the US as a bellwether for ETF trends, particularly due to its retail-driven investing culture. Fuhr noted the strong demand from retail investors and financial advisors for mutual fund-to-ETF conversions, leading to innovations such as the Vanguard share class model.
“Fifty-one firms are asking the SEC for approval to use this model since Vanguard’s patent expired in May 2023,” she explained, predicting that once regulatory approval is granted, many more firms will enter the space.
Evans added that these trends reflect a shift in investor preferences, particularly among younger generations who value accessibility, flexibility, and transparency.
Fuhr also highlighted how events like the Covid-19 pandemic accelerated retail participation in ETFs, noting, “In 2021, 15% of U.S. investors were new to investing, largely driven by men trading thematic ETFs from home.”
Europe’s slower yet steady path
The European trajectory for ETFs, and especially active ETFs, was described as more complex and institutionally driven.
O’Brien reminisced about the early 2000s when ETFs were launched in Europe: “We expected a heavy retail takeover… we thought, this is a better mousetrap.”
However, the initial subscriptions were from institutions, not individuals. He attributed this to Europe’s lack of a self-directed investing culture, stating, “In Europe, we barely understood [retail investing] because we left all that to insurance companies and other institutional investors.”
Mistry agreed, “We didn’t have an equity culture,” he declared.
O’Brien pointed to the emergence of platforms like Revolut, DeGiro, and Trade Republic, which offer user-friendly interfaces for trading ETFs. “Now we have access to investing platforms… ETFs are an ideal tool for that because they’re easy to understand and transparent,” he said.
Barriers to adoption
Despite these improvements, several barriers to wider adoption remain. Baron observed that traditional banks and insurance companies in countries like France still operate on closed architectures and rebate models that disincentivize the inclusion of ETFs. “There’s no financial incentive for them to put ETFs on their platform,” she said, adding that the execution cost of ETFs can also be prohibitive for some institutions.
Fuhr, meanwhile, noted that ETFs have seen “70 months of consecutive net inflows globally,” and “60 months consecutively for active ETFs,” underscoring their growing popularity.
However, she also acknowledged the infrastructural limitations Europe faced in the early days, recalling the challenges of getting online in the 1990s and the cumbersome process of installing phone lines for internet access. Today, mobile apps and increased transparency offer a different landscape.
Innovation and market saturation
As the ETF market matures, the panellists agreed that innovation is becoming critical, with Baron commenting that traditional benchmarks are saturated. She explained, “This is why we’re seeing more innovation through actively managed ETFs, which are enlarging the palette of tools for investors .”
Evans and Sanguinetti debated the saturation narrative, with Evans noting that mutual funds have even more redundancy in product offerings. “I did a small-cap US search… and found over 400. For large-cap, the number would be much higher,” she said.
For her part, Sanguinetti added that mutual funds never had to innovate because of their opacity, unlike ETFs which “have had to be creative from day one due to their transparency.”
Education emerged as a recurring theme. While there was consensus that awareness is improving, especially among younger investors, there’s still a long way to go. Evans remarked humorously, “If I said to my mum I’m talking about ETFs this morning, she’d say, ‘That’s lovely, darling,’ and have no idea what I meant.”
Fuhr supported this, noting that even governments are recognizing the need to promote investment literacy. “They’re trying to move people from cash ISAs to investing,” she said, emphasizing that ETFs could be central to long-term financial planning.
Sanguinetti and Baron elaborated on the challenges of embedding ETFs into pension systems across Europe. “In France, you still can’t use ETFs in many retirement plans,” Baron said, citing structural obstacles like retrocessions and captive bank distribution networks.
Lessons from the US
O’Brien summarized the contrast well: “In the US, demand is pushing issuers, and issuers are pushing regulators. In Europe, we’re still catching up.” He described how demand for innovative products, including leveraged ETFs and covered call strategies, is largely retail-driven in the US, whereas European markets remain more cautious and regulator-driven.
Sanguinetti cautioned about the risks of rapidly expanding into more complex or illiquid strategies like private markets or real estate. “Last year, we had four separate requests for real estate-backed ETFs. But it’s incredibly hard to make market making work with such illiquid underlings,” she said.
“Just because it’s wrapped in an ETF doesn’t mean it is liquid. It is only as liquid as what’s underneath.”
O’Brien added that misconceptions about ETF liquidity persist, citing early efforts in the Middle East where ETFs were expected to magically generate liquidity for thin markets.
Active ETFs: An evolution, not a revolution
The panel concluded that while active ETFs are not poised to entirely replace traditional ETFs or mutual funds, they represent a significant and growing part of the industry. In the US, this evolution is well underway, propelled by a strong retail culture, technological infrastructure, and regulatory responsiveness. In Europe, the path is more gradual, shaped by institutional inertia, cultural differences, and regulatory complexity.
Baron summarised the outlook succinctly: “People are asking. There is demand. At some point, it will happen.” And as Fuhr put it, “The trajectory is here.”
In the words of Sanguinetti, “ETFs aren’t killing the industry—they’re forcing it to evolve.” The next chapter for European ETFs may not be written at lightning speed, but the writing is unmistakably on the wall.
The reception of active ETFs by APs in Europe
The high-level panel of experts went on to discuss how authorised participants in Europe will view the advent of active ETFs, given the need to provide liquidity and transparency.
The high-level dialogue was marked by a shared recognition of both the potential and challenges of active ETFs, particularly in relation to market making, transparency, and operational demands.
Sanguinetti set the tone with a candid reflection on the growing complexity faced by market makers. “The more active ETFs that we have, the more difficult it becomes for a market maker to keep monitoring them,” she noted, emphasizing that transparency and close communication between issuers and market makers are essential.
She warned of the risk of market makers withdrawing from products if repeated surprises in pricing or underlying changes erode their trust. “If that happens a few times and there is a big move in P&L, there will come a time when the market maker says, ‘Stop! We don’t want to do these products anymore.’”
Sanguinetti also underscored the structural limitations within larger institutions, pointing to the fragmented nature of bank trading desks as a further challenge. “It is complicated,” she concluded, “but there needs to be a proper communication and a desire to make it happen.”
O’Brien supported this viewpoint, highlighting the importance of understanding the ETF composition: “You as a market maker will understand what’s in the ETF and what you have to deliver,” he said. He later stressed the necessity of strong issuer-market maker relationships: “That’s where you need… a very close relationship with your market makers.”
Transparency vs. proprietary strategy
Sanguinetti further delved into the tension between maintaining proprietary investment strategies and providing transparency. “The market maker needs access to your secret sauce,” she said, acknowledging the discomfort this might cause active managers. Nonetheless, she argued that mutual trust, backed by contractual obligations, must prevail: “The market maker shouldn’t be doing dodgy things with the information… and the active manager needs to be open to sharing.”
Mistry, meanwhile, brought attention to another critical concern: the potential misalignment between ETF structure and asset liquidity. “I definitely see ETFs as the wrapper for liquid strategies,” he said.
He warned against incorporating illiquid assets, noting it could “tarnish the reputation of the industry.” Mistry suggested that mutual funds remain the better vehicle for illiquid investments, where intraday liquidity is not required.
This sentiment was echoed by Sanguinetti, who remarked on the increasing tendency to assume that “everything can be done through ETFs.” She emphasized the need for investor education on the nature of ETFs and cautioned that “market making of ETFs is a very low-margin business,” even for liquid products.
She went on to highlight a recurring issue: issuers assume their ETFs are straightforward simply because they contain large-cap stocks. However, as she explained, “I don’t know when you’re trading. So obviously I need to have some sort of protection.”
Education and adaptation for active managers
Baron also noted a significant adjustment curve for active managers venturing into ETFs. “They’re not used to dealing with ETFs… for them it’s a learning curve to understand that people can pull the trigger in a few seconds,” she said.
The speed and responsiveness demanded by ETF trading contrasts sharply with the slower dynamics of traditional mutual funds.
O’Brien picked up on this, posing a pivotal question: “When we have an active manager launching an ETF, what do I need to change?” His answer reinforced Sanguinetti’s point: it’s about “communication with the APs and understanding that community.”
At this point Fuhr added a layer of complexity by highlighting the operational challenges tied to Europe’s fragmented ETF landscape. “There’s over 3,000 ETFs with over 13,000 listings in Europe,” she said.
“They’re listed on 29 exchanges… so they’re responsible for pricing in different currencies.” This, she emphasised, requires a highly coordinated and responsive infrastructure, something that many APs may find burdensome as more active products enter the market.
Sanguinetti and Baron agreed, noting the extensive workload involved in managing such products across platforms and jurisdictions.
A roadmap to viability
While the panellists were aligned in their enthusiasm for the growth of active ETFs, they also issued a clear message: the viability of these products hinges on trust, transparency, education, and coordination.
From liquidity management to data sharing, the active ETF model introduces complexities that all stakeholders — issuers, market makers, authorised participants, and regulators — must work collaboratively to resolve.
The roundtable ultimately underscored that success in this arena will not be defined by innovation alone, but by the depth of communication and alignment among the ecosystem’s key players.
The panel
Caroline Baron, head of ETF distribution EMEA at US-based asset manager Franklin Templeton
Hannah Evans, head of manager research at fund buyer/distributor Omnis Investments
Deborah Fuhr, founder and managing partner of independent research and consulting firm ETFGI
Manooj Mistry, chief operating officer at white label ETF provider HANetf
Tony O’Brien, chief commercial officer at custodian and fund administrator US Bank
Roxane Sanguinetti, ETF trading & market making specialist at consultancy firm Alimeia Ventures
Mark Latham, deputy editor, Funds Europe (moderator)