After 2025, European ETFs confront the real tests of 2026

By Marlene Hassine Konqui, independent ETF expert, Associate Director General BSD Investing; The ETF Expert’s Lens – #2

From growth to selection

2025 was a historic year for ETFs in Europe, with assets under management reaching a new record of approximately USD 3,220 billion by the end of December 2025, representing 42% growth year-on-year (ETFGI). This confirms the structural interest of institutional investors in ETF vehicles.

Beyond flows, 2025 was also a year of regulatory transformation and adoption of innovative models, particularly in active ETFs. The outlook for 2026 therefore hinges on identifying clear milestones that will help assess the market’s true level of maturity.

Quality of ETF flows: from exceptional to structural

What 2025 revealed:

• Record inflows of nearly USD 396 billion (ETFGI), confirming that European ETFs are attracting capital at scale.
• Increasing diversification of flows: equities, fixed income, and specialised strategies are becoming key drivers of asset gathering.

2025 takeaway: investors now have access to an increasingly diversified ETF universe, suitable for both tactical and strategic allocations. Given the uncertain and volatile market environment, traditional passive strategies largely dominated flows, as investors primarily sought tactical investment tools in such conditions.

What to watch in 2026:

• Changes in the proportion of flows allocated to non-core or broadly defined active ETFs (active strategies, complex fixed income, thematic products).
• European ETFs are increasingly attracting long-term flows, embedded in institutional strategic allocations via direct mandates and discretionary platforms, rather than purely tactical flows.

Key 2026 indicator: a meaningful share of flows into higher value-added strategies would confirm a deep transformation in asset allocation practices.

Trends and innovation: the ETF market is transforming

2.1 Active ETFs: innovation serving institutional needs

2025 marked a breakthrough year for active ETFs in Europe, driven by concrete regulatory developments initiated in France and Luxembourg as early as 2024. The abolition of the Luxembourg subscription tax, adjustments to the Irish framework for semi-transparency and ETF share classes, and the launch of HSBC dual share class structures and Fidelity semi-transparent ETFs have enabled active ETFs to meet demanding institutional requirements, including in structured credit and CLO strategies.

To watch in 2026: adoption within core and satellite portfolios, use of ETF share classes as a standard, and flow comparisons versus passive ETFs.

Key indicator: effective use in LDI, multi-asset, and fixed income allocations.

2.2 Specialised strategies: buffer and hedge fund ETFs

Buffer ETFs tripled their assets in 2025, reaching USD 6.8 billion (+263%), reflecting strong demand for capital protection in a volatile environment. Hedge fund ETFs remain marginal (less than EUR 500 million) but retain upside potential should the market cycle turn.

2026 watchpoints: expansion of buffer ETFs on European indices, integration into model portfolios, and a potential revival of hedge fund ETFs depending on market conditions.

Key indicator: sustainability of buffer ETFs and the revival potential of hedge fund ETFs.

Crypto ETFs: normalisation and institutional adoption

Crypto ETFs and ETPs continue to gain traction, with USD 20–25 billion in assets (+40–50%) (ETFGI; CoinShares). The market remains highly concentrated in Bitcoin (~70%) and Ethereum (~20%; CoinShares, Morningstar Direct), with flows favouring the most liquid products.

To watch in 2026: asset stability outside bullish phases, product range expansion, gradual integration into multi-asset allocations, and the impact of the MiCA regulatory framework.

Key indicator: transition toward a regulated, recurring allocation compatible with institutional constraints.

Liquidity and secondary market: a real-life stress test

What 2025 highlighted

Liquidity remains a strategic issue. Despite improvements, active ETFs and certain fixed income segments still exhibit wider spreads than traditional benchmarks, at times limiting the execution of large trades.

2025 takeaway: ETF liquidity remains a critical selection criterion in institutional portfolio construction.

What to watch in 2026

• The impact of the gradual implementation of the Consolidated Tape Provider (CTP) for equities and ETFs, selected in December 2025 (EuroCTP). Subject to authorisation, the tape is expected to become operational as early as July 2026, improving real-time trading data transparency.
• Changes in effective spreads and order book depth in active ETF segments.

Key 2026 indicator: a measurable improvement in ETF liquidity, observable in order books and consolidated data, would strengthen the ability to execute institutional-sized trades.

Regulation and ESG framework: toward heightened credibility requirements

2025 marked a key step in tightening ESG requirements applicable to funds and ETFs:

• Continued stricter interpretation of the SFDR framework, with more rigorous scrutiny of Article 8 and Article 9 classifications by European authorities.
• Increased expectations around ESG transparency (objectives, methodologies, PAI indicators), forcing many sustainable ETFs to adjust their positioning or documentation.

Across 2024–2025, the ESG debate has progressively shifted from labels to the ability of products to remain compliant over time, directly affecting the eligibility of ESG ETFs in institutional portfolios.

2025 takeaway: ESG has become a full-fledged investment filter, rather than a simple classification criterion.

What to watch in 2026

• The impact of revised ESG standards on the stability of Article 8 and 9 classifications.
• The evolution of anti-greenwashing requirements and their operational implications for ESG ETFs.
• The growing role of active ESG ETFs as an adaptation tool to regulatory constraints.

Key 2026 indicator: the ability of ESG ETFs to remain eligible within demanding institutional mandates without frequent reclassification or structural adjustments.

2026 will be the year of validation

2025 marked a turning point for the European ETF market: rapid growth in issuance, the rise of active ETFs, structural innovations (dual share classes, semi-transparency), and an expanding range of strategies accessible through the ETF format.

The ability of active ETFs to capture flows, their sustainable integration into institutional allocations, the robustness of ESG frameworks, and the effectiveness of new market infrastructures.