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GPS: The direction of travel for European ETFs?

GPS: The direction of travel for European ETFs?

Exchange-traded funds (ETFs) have gained remarkable prominence in recent years as investment vehicles, offering investors a diversified and cost-effective means to access a wide range of assets.


The European ETF market, in particular, has continued on its upward trajectory, further solidifying its position in the investment landscape.


Several countries have emerged as notable players, boasting substantial growth and investment opportunities, but a recent Blackrock report singled out three as having the greatest potential right now: Germany, Portugal and Spain.


Germany: leading the way


Germany’s journey in the ETF market is nothing short of remarkable. Its consistent growth since 2019, record-breaking inflows, market leadership, economic strength, and growing investor base, particularly via increasingly popular ETF savings plans, make it a compelling destination for Europe’s ETF issuers, so its presence on the list is no big surprise.


Indeed, a recent article from ETF Stream projects 50% growth in global assets invested in ETFs, reaching $15 trillion within five years, and Germany is anticipated to be among the fastest-growing countries.


While Germany has been dominating the ETF landscape, Spain and Portugal are quietly emerging as promising contenders. These countries, with relatively low ETF penetration levels, are forecast to experience a combined 64% increase in the number of ETF investors, according to the report. This means more than one million people are “very likely” to invest using an ETF in the next 12 months.


Spain: on the up


Spain, in particular, has started gaining traction, enjoying some of the largest increases in ETF investment among developed markets. Its appeal in the European ETF landscape lies in its robust economic fundamentals, consistent ETF AUM growth, and potential for increased retail investor participation. The recent 2023 expansion of ETF listings in Spain, coupled with a broader economic recovery, seems to be driving optimism in the market.


Portugal: one to watch


Perhaps to the surprise of some, Portugal has also emerged as a notable contender, exceeding expectations with its ETF market growth, despite earlier predictions of limited potential. This remarkable feat is underpinned by the country’s resilient economy, characterised by positive GDP growth and improved government deficit projections.


The confluence of these factors, combined with a relatively low level of ETF adoption currently, makes Portugal’s ETF market especially intriguing when compared to its European counterparts.


The European ETF market continues to show huge promise, albeit with varying growth prospects among different countries. Therefore, it’s crucial to understand local market characteristics and idiosyncrasies and closely monitor developments in this field.