Two distinct camps emerge among institutional investors’ active ETF adoption

Written by Adam Cadle

22/01/2025

Two distinct camps are emerging among institutional investors concerning their perceptions of active ETFs, according to latest research, with 27% being ‘early adopters’ and 73% being ‘considerers’.

J.P. Morgan Asset Management’s (JPMAM) latest survey found that those ‘early adopters’ are leveraging active ETFs for tactical and strategic goals, particularly to navigate market volatility and align with thematic goals, and the ‘considerers’ are those facing resistance due to a preference for passive ETFs, knowledge gaps, and structural hurdles.

ETF usage varies widely across Europe, the survey found. Typically, ETFs account for 15%-30% of asset owner portfolios with allocations at their highest in Italy, France and Germany, while UK institutional investors currently lag behind in their ETF adoption.

Momentum for increased allocations is building, however, thanks to cost pressures and more interest and awareness of what ETFs can offer in areas like risk and transition management.

“These are encouraging results. Given the majority of active ETFs globally are less than 3 years old, it's impressive to see that nearly 30% of large asset owners in Europe are already utilising active ETFs,” said Travis Spence, global head of ETFs at J.P. Morgan Asset Management.

“We expect institutional investor adoption to increase in the coming years as active ETF track records mature and scale is achieved. Our research highlights the need for greater education and clarity around the benefits of active ETFs – transparency, flexibility, liquidity, cost-efficiency, and potential for outperformance – to unlock their full potential in institutional portfolios, so that Europe’s institutions aren’t missing out on the active ETF opportunity."

This research, prepared by Research in Finance, explored institutional investor perceptions of active ETFs across 12 European countries. The study included 70 in-depth, qualitative interviews conducted in September and October 2024 with institutional fund selectors and decision-makers from pension schemes, insurers, consultancy firms, and foundations.

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