Demand for active ETFs rises among European institutions

Crisil Coalition Greenwich reports growing interest in active exchange-traded funds among European institutional investors and intermediaries. The firm’s survey finds that more than 40% of institutional ETF users expect to increase active ETF usage over the next two to three years, while about two thirds of intermediaries plan to expand their use.

On average, active ETFs account for 19% of total ETF holdings at institutional investors, with larger institutions holding a higher share. Among firms that offer ETF products, active ETFs represent roughly 12% of ETF assets under management, and that percentage is higher at larger intermediary firms.

Respondents say they are using active ETFs primarily as strategic components of portfolios rather than for short-term trades. Some investors use active ETFs to complete portfolios by filling gaps in exposures or implementing specific allocation ideas.

Liquidity and expense ratio are the top factors affecting ETF selection for both users and distributors. Historical performance, manager reputation and benchmark design also influence choices. For active ETFs in particular, managers’ performance track record ranks as the most important consideration, followed by fee levels and the strength of a manager’s ETF brand. Institutional investors highlighted the value of a solution-oriented approach and identified several areas for new product development.

Investors and intermediaries find new ETF products through a mix of channels. Common sources include third-party databases, manager websites and industry events. Manager outreach, word of mouth and online searches also play a role. Intermediaries most often hear about new offerings through direct outreach from managers and via databases, with events and web resources as supplementary sources.

Materials that demonstrate expertise help managers win business. Case studies, portfolio construction guidance, research papers, performance analysis and market commentary were cited as effective ways to strengthen a manager’s ETF credentials. Intermediaries noted that while fees matter, performance typically carries more weight in selection decisions.

Interest in active strategies covers equities, thematic funds and fixed income. Intermediaries expect the strongest growth in equity active ETFs, followed by thematic and fixed income strategies. The report suggests managers can pursue differentiation through new product designs, stronger marketing and competitive pricing.

Active ETFs are funds that use active stock or bond selection but trade on exchanges like traditional ETFs. The report indicates these vehicles are gaining traction in Europe as investors look for tradeable funds suitable for long-term allocations and for filling targeted portfolio needs.