Exchange-traded funds (ETFs) under management have reached record levels of more than $22 trillion this year, but the evolution of this industry varies considerably depending on geographic regions. A situation that poses a series of unique challenges and opportunities for both sponsors and distributors, according to a study conducted by Brown Brothers Harriman & Co. (BBH). BBH’s recent event held in London, titled “The World of ETFs: Regional Perspectives, Global Visions,” offered insights from the firm’s experts on key regional differences and the challenges facing the sector.
Challenges in the U.S. Market BBH’s Head of U.S. ETF Services, Tim Huver, highlighted the country’s position as the most mature and innovative ETF market globally. According to Huver, active ETF structures now account for the vast majority of new fund launches in the United States, attracting a disproportionate share of net inflows. He also pointed out the growing product innovation in areas such as the conversion of mutual funds into ETFs and share classes, fund cloning, and the broader benefits provided by U.S. tax regulations supporting ETFs. However, despite the boom in the exchange-traded fund business in the United States, challenges remain in the U.S. market. “In many ways, barriers to market entry have never been lower, but certain distribution hurdles persist, particularly with wealth management platforms and wirehouses, whose requirements regarding track record, asset levels, and liquidity can prove restrictive,” Huver stated.
The Potential of Latin America The discussion on Latin America focused less on product innovation and more on market access and distribution. The Latin American investment market suffers from a lack of regional harmonization, according to BBH. Daniel Montoya, Head of Relationship Management for the Americas at BBH, described how each local market has distinct regulatory, tax, and operational requirements, creating significant complexity for asset managers and their distributors. “The success of ETFs in this market depends far less on launching new products and much more on securing strong local distribution partners and establishing relationships with local market makers, as well as understanding the behavior of institutional buyers and adapting strategies country by country,” he said. Despite these challenges, Montoya believes there is ample room for growth in regional and local ETF markets. “While local ETF markets remain relatively small, demand for exposure to global ETFs is already substantial in countries like Mexico and Chile, while Brazil has built a solid retail ETF investor base,” he noted.
Evolution in Europe Andrea Murray, Head of EMEA ETF Services at BBH, described the regional adoption of ETFs as a phenomenon increasingly driven by savings plans, investment platforms, pension reforms, and government initiatives designed to encourage the transition from savings to investment. Murray highlighted the rise of platform collaborations, co-branded ETFs, and bank launches of their own exchange-traded fund products as major structural developments. The adoption of active ETFs varies across geographic regions, and although active ETFs still represent a small portion of the overall European market, Murray noted that they are “growing rapidly” due to regulatory changes that make this format more attractive to traditional active managers. “European transparency and regulatory changes—such as progress toward a Savings and Investments Union (SIU)—are accelerating the launch of active ETFs. Europe is also opening up retail distribution in markets like Germany, and we are observing an increasing adoption of actively managed ETF products,” she stated. However, Murray also identified key market challenges, including the need for specialized expertise in ETF-related capital markets in a region where having quality, highly knowledgeable distribution partners can also be critical to success. “Capital markets expertise remains the single largest operational challenge for new issuers in Europe,” she added.
Asian Fragmentation Chris Pigott, Head of Asia ETF Services at BBH, described the region as a “thriving,” albeit “multifaceted and fragmented” market that is undergoing rapid changes. Describing some unique market trends observed in Asia, Pigott added that ETF “Connect” programs with mainland China create significant cross-border growth opportunities, while digital distribution channels are also gaining increasing importance in markets like Hong Kong. “Retail investors continue to exert a strong influence on Asian markets, though their behavior can vary dramatically from one local market to another. The market is evolving rapidly, and ETF approvals by mainland China could unlock a major new market in the region,” he stated.
Conclusions Ultimately, ETFs have evolved from a mere product category into a truly global investment vehicle, and the development of active ETFs has become an increasingly dominant global growth trend. With the United States leading innovation, Europe is driving retail distribution and the adoption of active strategies through regulatory changes. Meanwhile, Asia is creating new growth models, while Latin America continues to present significant untapped market potential. In this context, the firm believes that retail investors are becoming increasingly important everywhere. Experts systematically highlighted distribution as the primary factor determining success, in many cases proving to be even more important than product creation. On the downside, there are indications, particularly in Europe, that much-needed ETF-specialized capital markets expertise is in short supply. Nevertheless, across all regions, experts agreed that the combination of active ETFs, the growth of retail investors, and the improvement of distribution infrastructure is helping shape the next phase of the sector’s expansion.
