European investors plan bigger active ETF allocations: survey

European professional investors plan to increase their active exchange-traded fund allocations from 10.2% to 14.6% of portfolios over the next 18 months, according to research commissioned by Fidelity International.

CoreData Research surveyed 310 professional asset allocators in France, Germany, Italy, Switzerland and the UK who currently use, or plan to use, active ETFs.

The share of allocators investing at least 25% of their equity exposure in active ETFs is expected to rise from 25% now to 37% over the next 12 months. In fixed income, the proportion is projected to increase from 18% to 25%.

US equities were identified as the area with the strongest opportunity for active ETFs, cited by 44% of respondents. Emerging-market equities followed at 33%, ahead of small-cap stocks at 29% and developed European equities at 28%.

Neil Davies, head of ETFs at Fidelity International, described active ETFs as a portfolio-construction tool rather than a niche product. “Our research suggests professional investors increasingly see them as a genuine portfolio construction tool, with allocations expected to grow meaningfully over the coming 18 months,” he said.

Fidelity classified active ETFs into three groups based on their distance from a benchmark. Benchmark-aware funds generally have a benchmark deviation of 1% to 2%, high-conviction funds typically deviate by 3% to 4%, and discretionary funds invest without being tied to a benchmark.

At least 40% of respondents reported a strong understanding of the different approaches. Usage was lower for high-conviction and discretionary strategies. Benchmark-aware active ETFs were the most widely used, with 47% of respondents already investing in them.

Over the next five years, 35% of allocators expect benchmark-aware enhanced active ETFs to become a significant portfolio allocation. High-conviction and discretionary products were more often expected to serve as satellite allocations, cited by 31% and 23% of respondents, respectively.

High-conviction ETFs were the category most frequently identified for future product development. Half of respondents wanted more products in this area, compared with 25% for benchmark-aware enhanced ETFs and 25% for discretionary ETFs.

Stefan Kuhn, Fidelity’s head of ETF distribution for EMEA, described cost efficiency as one of the main considerations for investors. It was cited by 79% of respondents, while 75% pointed to liquidity, tradability and intraday pricing. Transparency was cited by 74%.

Investment outcomes also ranked highly. The potential for outperformance was cited by 74% of allocators, while 71% highlighted diversification and the ability to manage concentration risk. Kuhn identified research, portfolio construction and risk management as areas where active ETF providers could differentiate their products.

Global assets in actively managed ETFs have exceeded $2.4 trillion, according to Fidelity. European UCITS active ETF assets are projected to surpass $1 trillion by 2031. The number of active ETF providers in Europe has more than doubled since 2023, while the number of products has risen from 95 to more than 400.