Jens Ehrhardt has been a prominent figure in the German capital markets for more than 50 years, earning dozens of awards. Until this year, his firm DJE Kapital had only issued traditional mutual funds. In February, however, DJE launched its first actively managed Exchange Traded Fund focused on US equities, in cooperation with DWS subsidiary Xtrackers. „With the active US ETF, we aim to offer investors a cost-efficient and transparent US equity strategy,“ says Thorsten Schrieber, a member of DJE’s management board.

Allianz Global Investors (Allianz GI), another active investment firm, had also exclusively offered traditional active funds until recently. Now, Allianz GI is entering the actively managed ETF space – though initially only for clients in Taiwan. „We know that active ETFs have become increasingly attractive to a portion of our client base, as they combine the benefits of active investing with low entry barriers and low costs,“ explains Tobias C. Pross, CEO of Allianz GI.

A turning point is underway in the fund industry. While inflows into ETFs are booming, traditional mutual funds are losing traction. „ETFs have established themselves as liquid and cost-efficient investment products that can be used in a wide variety of ways,“ says Simon Klein, Global Head of Xtrackers Sales at DWS. To stay in the game and attract strong inflows, more and more traditional fund providers are launching ETFs. Active ETFs in particular – low–cost, exchange-listed funds with active portfolio management – are gaining popularity.

In the German retail fund market, ETFs now attract around two thirds of new money. According to the German Investment Funds Association (BVI), of the 32.5 billion euros in inflows during the first quarter, a striking 20.5 billion euros , or 62.9%, went into ETFs. ETFs now account for 24% of total fund assets in the country.

The European ETF industry reached new record highs in both inflows and assets under management in the first half of the year. In June alone, net inflows amounted to 26.3 billion dollars, bringing total inflows for the first half of the year to a record breaking 176.1 billion dollars, according to analysis by ETFGI. At the same time, assets managed by the European ETF industry climbed to an all-time high of 2.74 trillion dollars by the end of June. The fact that June marked the 33rd consecutive month of inflows illustrates the growth trend.

This ETF boom poses a challenge for established asset managers, who have long profited from traditional products. On the equities side, annual fees for actively managed funds can range from 1.5% to 1.8%. ETFs, by contrast, come with significantly lower fees – often starting at just a few basis points.

That said, ETFs can of course be highly profitable – if the provider manages to attract enough assets. BlackRock demonstrates this with its subsidiary iShares, the European ETF market leader with a 41.3% market share. According to ETFGI, iShares recorded inflows of 62.4 billion dollars in Europe during the first half of the year, bringing its total assets under management to an impressive 1.13 trillion dollars.

Other major players in the ETF space include Amundi and – Germany’s only major asset manager in this field – DWS with its Xtrackers brand. Several large U.S. firms such as Vanguard, Invesco, and State Street Global Advisors (whose ETFs are known under the SPDR label) are also shaking up the European fund market.

It’s no surprise that cost-conscious institutional investors favour ETFs. But more and more retail investors are also turning to exchange traded funds. Young people in particular prefer to buy ETFs through digital channels such as neobrokers and discount brokers. Visiting a traditional bank branch – often perceived as outdated and stuffy – holds little appeal for the younger generation. ETF purchases, along with financial „education,“ increasingly take place via smartphone.

Consumer protection agencies, along with organizations like Stiftung Warentest and Finanztip, also recommend low-cost ETFs to private investors, especially as a tool for retirement savings via ETF-based investment plans.

Asset managers who don’t offer ETFs risk appearing outdated – at the very least, they lack products in a segment that’s seeing strong investor demand. That’s why more and more traditional fund houses are now complementing their existing lineups of mutual funds with ETFs. In Europe, firms such as J.P. Morgan Asset Management and Fidelity have entered the market with actively managed ETFs. These, however, are designed to have a different focus than the firms’ existing actively managed funds.

Among the major German players, DWS with its Xtrackers brand and Deka have been offering ETFs for years. „ETFs are both an entry–level and complementary product for us, and they are also distributed through advisors,“ says Denis Friess, Head of Institutional Fund Management at Deka Investment. ETFs are thus also actively sold through the Sparkassen savings bank network.

As mentioned earlier, Allianz Global Investors is already offering active ETFs in Taiwan. „Based on the experience we gain there, and taking into account the specific market conditions in each region, we will decide on further steps in due course,“ the firm says. „But any such products would remain actively managed ETFs.“

Union Investment, by contrast, does not currently offer any ETFs. „We will continue not to offer passive ETFs,“ the firm states. „We are examining the business case for active ETFs, but no decision has been made yet on whether we will enter that segment.“