ETFs are experiencing strong growth, and the trend is set to continue. According to Fidelity International’s latest survey, European professional investors are preparing to increase their allocations to active exchange-traded funds. Specifically, average allocations to active ETFs are projected to rise from the current 10.2% of portfolios to 14.6% over the next 18 months. Against this backdrop, Stefan Kuhn, Head of ETF Distribution for EMEA at Fidelity International, breaks down the trends and challenges surrounding these vehicles, including a growing tilt toward more index-oriented solutions as well as longevity and retirement planning.
ETFs have experienced a genuine boom in Europe in recent years. What factors will help sustain this trend in the near future?
More and more savers are taking the step to become investors. Issues such as longevity and retirement planning occupy a central place in conversations with end clients today, and ETFs have established themselves as one of the preferred options for those starting to invest. At the same time, there is a growing tilt toward more index-oriented solutions for certain parts of portfolios. There remains ample room for actively managed funds, but combining high-conviction active strategies with more indexed solutions is gaining increasing prominence.
In general terms, what trends are you observing in the European ETF industry?
Without a doubt, we are seeing a clear trend toward active ETF solutions. It remains to be seen whether demand will concentrate primarily on strategies with a stronger index orientation or whether it will eventually shift toward genuinely active funds packaged in an ETF format. In my view, the former makes more sense, as an ETF is not just an investment vehicle or format, but almost a philosophy. Cost-efficient, index-oriented, and systematically managed solutions packaged inside an ETF appear to be precisely what the market demands.
Which European countries are recording the strongest ETF growth?
The main ETF markets in Europe are the United Kingdom, Germany, Italy, and Switzerland, although France and the Nordic countries are also gaining ground rapidly. In Spain, the transfer regime poses a certain obstacle, as the tax treatment of traditional unlisted mutual funds, including index funds, is more favorable than that of ETFs. Were this situation to change, there is significant latent demand that could drive the growth of the Spanish market.
What lessons can Europe learn from the United States to continue driving ETF growth?
One of the main lessons is the naturalness with which the debate around retirement and the potential retirement savings gap is approached. In the United States, people talk much more openly about how they invest for retirement than in Europe. Although Europeans are aware that they will likely need to save more to supplement their retirement, these conversations are not as widespread as across the Atlantic. It is also worth noting that ETFs in the United States enjoy a significant tax advantage over traditional mutual funds, which is not the case in Europe. Even so, the appeal of more index-oriented solutions within the ETF format is a reality across the continent.
What would you advise an investor who does not yet hold ETFs in their portfolio, but is considering adding them over the short or medium term?
Over the short term, broad exposure to global equities is probably the most logical first step. That exposure can be obtained through either an active or a passive ETF. Maintaining an equity allocation remains, over the long term, one of the best ways to preserve purchasing power against inflation. Over a more medium-term horizon, active ETFs prove particularly attractive. It is not merely about replicating the market, but about benefiting from the contribution of an active manager seeking to generate additional value relative to the index.
Which ETF strategies currently offer the best opportunities?
For the retail investor, the greatest opportunities remain in U.S. and global equity exposures. For professional investors, opportunities tend to lie in more specialized or niche strategies. In my opinion, end investors should not overcomplicate their portfolio construction. If they manage their investments on their own, the most important thing is to be invested in the market. For those who have or are willing to seek financial advice, portfolio construction takes on even greater relevance, as professional investors have access to a much broader toolkit and set of strategies.
Also noteworthy is the growth of outcome-oriented ETFs, whether focused on income generation or strategies featuring partial downside protection mechanisms.
Does the rise of active ETFs make index funds less attractive?
In Spain, I fear the decisive factor remains taxation rather than performance itself. Beyond the tax disadvantage that ETFs currently face in the Spanish market, I consider active ETFs to be considerably more attractive than passive ones.
What are Fidelity International’s goals in the ETF business, for example in terms of inflows, assets under management, or entry into new markets?
As our Head of EMEA, Samantha Ricciardi, has noted, our objective is to more than triple current assets under management to reach €60B over the coming years. Furthermore, we aspire to remain among the 3 largest providers of active ETFs both in Europe and globally.
