EFAMA has released today a new issue of its Market Insights series titled “UCITS ETFs: A growing market in volatile times”.

The publication highlights some of the main European ETF market trends and important differences between ETFs and  other exchange traded products (ETPs). Drawing evidence from bouts of severe market volatility over recent years, we note that the resilience of the ETF product has been repeatedly tested. Our findings debunk many of the previous “myths” around the stability of ETFs, arguing how these have, under certain conditions, even acted as “pressure valves” for investors to trade certain assets (e.g. corporate bonds) in times of heightened stress. We also look at the benefits of an EU consolidated tape for equities/ETFs and urge policymakers to remain ambitious in delivering the benefits of this initiative, as this will support the ever greater demand for UCITS ETFs, both in Europe and internationally.

Key findings:

• ETF assets reached a total of EUR 1.4 trillion at the end of 2022, representing the lion’s share of the growth in ETPs over the last five years.
   
• ETFs have been continuously innovating, nowadays offering both retail and institutional investors exposure to several non-equity asset classes, as well as to unique strategies (e.g. factor investing, life-cycling and active strategies, inter alia).

• The European UCITS ETF market displayed constant growth in sustainable investing, with persistent net inflows into Article 8 and Article 9 ETFs since the application of the SFDR (March 2021).
   
• The broader ETF ecosystem continued to operate well under recent episodes of significant market stress, proving that several formerly alleged ETF vulnerabilities simply did not materialise. On the contrary, ETFs continued to trade in the secondary market, while contributing to price discovery.
   
• The potential for European UCITS ETFs to further attract investors is considerable. A delivery of a full consolidated tape for these products in Europe will inevitably contribute a great deal to the international attractiveness of the “UCITS ETF" label.

Vera Jotanovic, Senior Economist at EFAMA, commented: “Our report focuses on the growing UCITS ETF market, which has been increasing in popularity among investors. The net flows of European UCITS ETFs have been consistently positive in the last five years, demonstrating resilience despite market turmoil. We also observe an increase in sustainable investing in the market, with positive net flows of Article 8 and Article 9 funds. ”

Federico Cupelli, Deputy Director for Regulatory Policy at EFAMA commented: “The European Commission has recently renewed its interest in the functioning of the EU ETF market. Our recent findings highlight important facts for policymakers to keep in mind when assessing the potential for UCITS ETFs to deliver on some of the objectives of the EU Capital Markets Union project. Their cost-effectiveness and transparency help investors access a growing number of asset classes and strategies, all within the world-class (UCITS) regulatory regime. The introduction of a consolidated equities/ETF tape will help the European ETF market to reach its full potential and attract more global investors.”

EFAMA’s Director General, Tanguy van de Werve commented: “The constant growth of the European ETF market is testament to the many benefits of ETFs and their increasing popularity with investors alongside actively managed investment funds. While the market is still largely dominated by institutional investors, more and more European retail investors invest in ETFs, including via digital platforms. It is therefore critical to ensure that the recent Retail Investment Strategy proposal  of the European Commission supports the organic growth of the ETF market and does not inadvertently reverse that trend.”

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Notes to Editors

For further information, please contact:

Hayley McEwen

Head of communications and member development

Hayley.McEwen@efama.org

About the Market Insights

EFAMA’s Market Insights series analyses recent industry trends and developments based on the latest available data and presents our findings in the context of current policy perspectives. We publish numerous concise reports each year covering diverse topics such as SFDR, the impact of inflation on retail investors, sustainable bond funds, UCITS costs and performance, ESG fund markets, and money market funds.