Active ETFs are redefining the parameters of modern portfolio construction, offering solutions to the challenges faced by institutional investors. While it is easy to get lost in the rapidly expanding array of active ETFs, when investing in them European institutional investors have remained firmly anchored near core allocations around established benchmarks such as MSCI World and Europe. This preference for opportunities with less active risk is not a reflection of conservatism or lack of innovation, but rather a rational response to the structural constraints they face.
Today, the actively managed equity ETF market in Europe is valued at €38 billion, and if growth rates persist, it may exceed €50 billion by year-end. Within this market, there are three main types of solutions. Alpha-focused active ETFs, that aim to generate excess returns by a range of methods – from leveraging systematic factor exposures to high-conviction selection. Outcome-oriented strategies focus on reshaping the distribution of returns, offering solutions that can enhance income or reduce volatility through options-based overlays or payoff engineering. Additionally, a new cohort of access-oriented active ETFs is emerging, providing scalable exposure to market segments not well served by traditional benchmarks.
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