ETF savings plans look set to take Europe by storm

A revolution in the way people invest is starting to spread through Europe, sparking widespread adoption of exchange traded funds by retail investors, industry observers and research analysts say.

The agent of change is the modest-sounding regular monthly savings, or investment plan, which has been credited with a surge in retail adoption of ETFs in Germany. Now industry observers say the concept appears to be beginning to take off in other European countries, including the UK.

“What we’re seeing internally in BlackRock is that the German story is spreading through Europe,” said Timo Toenges, head of Emea digital wealth, partnerships and platforms at BlackRock.

Research commissioned by BlackRock and undertaken by research consultancy extraETF shows the number of savings plans in Germany has risen by 33 per cent over the past year, from 7.1mn a year ago to 9.5mn today.

The trend began to take off in Germany during the pandemic in 2020, according to Markus Jordan, founder and managing director of extraETF.

“It was the right time and the right place for ETFs,” he said, describing the ease of investment offered by digital neobrokers such as Scalable and Trade Republic, growing investor understanding of the impact of fees on long-term returns, and growing familiarity with ETFs as an investment vehicle.

“The catalyst, though, was negative interest rates, from 2014-2022, coupled with the [cash] savings culture,” said Toenges, which meant savers were losing money. 

ETFs offered the possibility of positive returns and, as Jordan pointed out, helped to address two of the biggest problems encountered by investors: high fees and not enough diversification.

It is perhaps unsurprising, therefore, that another recently published study, also commissioned by BlackRock, into European investment trends showed ownership of ETFs had risen by 19 per cent since 2022, driven largely by investors aged 18-34, most of whom (80 per cent) were accessing ETFs via digital platforms.

“ETFs are the preferred vehicle for younger investors and digital channels are the preferred way that they like to participate,” Toenges said, adding that regular investment plans were emerging as a way for them to access the investment market.

Further evidence of wider adoption outside of Germany is provided by extraETF. Stripping out Germany, it estimates that the number of ETF active savings plans in those continental European countries it surveys has grown faster still, more than doubling to reach 1.3mn at the end of 2024 compared to 0.5mn in 2023.

In the UK InvestEngine, an ETF-only digital investment platform, is one of the latest to position itself for the expected boom, launching LifePlans at the end of November, a set of five investment portfolios.

InvestEngine is a relatively new player in the UK investment world, having launched in 2019. But further indicating the growing appetite for cheaper, easier and more self-directed routes to investing, it has become the fastest growing platform in UK, according to fund research house Fundscape, tripling its assets in the third quarter compared to the same quarter last year.

The decision to launch LifePlans was based on observed customer behaviour, said Andrew Prosser, head of investment at InvestEngine.

“From the start of the year, growth on the managed portfolio side has doubled but on the DIY side it has tripled,” Prosser said.

The LifePlan option, which skips the detailed risk-tolerance questionnaire that forms the gateway to the managed portfolio option, allows investors instead to choose a headline level of risk based on the percentage of equities in the portfolio. It is seen as a hybrid that addresses a number of issues that InvestEngine has observed about its customers’ behaviour.

“We know clients like to choose their investments — whether that’s individual ETFs or ready-made portfolios,” said Prosser. “We also know that the ready-made, multi-asset sector is massive,” he added, pointing out that £51bn was already invested in this sector through the three leading UK providers: Vanguard, Hargreaves Lansdown and AJ Bell.

Toenges said there had been flurry of activity in a number of European countries such as Italy where “more and more players are bringing their offerings to the market”. Understanding was growing, he added, that retail investors were looking for long-term investment solutions rather than the ability to make short-term trades.

“I would argue that the retail client wasn’t well served before and this growth is coming from people who were previously sitting in cash,” Toenges said.