ETFs: growth, innovation and Luxembourg’s advantage

What are ETFs?

Exchange-traded funds (ETFs) are investment funds listed and traded on stock exchanges, allowing investors to trade their shares or units like any other listed transferable security.

They are growing in popularity as an investment instrument, appealing to both institutional and retail investors because they offer low costs, real-time pricing and trading, and broad diversification across markets, sectors, and asset classes.

Why investors choose ETFs?

• Diversification: access to a large variety of markets, sectors, regions, asset classes and investment styles;
• Liquidity and flexibility: ability to buy and sell throughout the trading day;
• Transparency: daily pricing and easy performance monitoring;
• Lower costs: typically, lower total expense ratios than traditional funds.

Pasive vs active ETFs

Initially, ETFs were mainly used as passive funds, designed to track indexes such as S&P 500 or MSCI World at low cost. Actively managed ETFs, which have existed for some time, are now gaining traction as investors increasingly demand innovative, outcome-focused strategies that seek alpha and specific exposure. In these funds, managers make strategic investment decisions to outperform benchmarks or achieve specific objectives.

Active ETFs in Luxembourg  

Active ETFs are gaining prominence by combining the agility of active management with the efficiency of the ETF structure. The introduction of active ETF share classes allows asset managers to efficiently expand distribution by wrapping proven active strategies in this flexible format.

Luxembourg is ideally positioned to capitalise on this trend, offering a forward-thinking regulatory environment, tax advantages, and a shorter approval process, making it an ideal hub for launching and managing these dynamic investment vehicles.

Why Luxembourg stands out

• Flexible fund structures: ETF and non-ETF share classes can coexist in a single UCITS compartment, giving fund promoters efficient distribution options within existing fund structures.
• Portfolio transparency with a time lag: active managers can delay holdings disclosure for up to one month.
• Tax efficiency: active ETFs benefit from subscription tax exemption (effective 2025), ensuring parity with passive funds, and SICAVs benefit from Luxembourg’s extensive Double Taxation Treaty network.
• Streamlined approvals: efficient prospectus approval process and the established practice of applying different investment cut-off times for share classes streamline product launch and ongoing management.

These reforms, combined with Luxembourg’s established fund ecosystem and regulatory expertise, position the country as a leading hub for the next wave of ETF growth in Europe.

Market growth 

Europe

• European ETF industry assets reached around EUR 2.68 trillion (USD 3.11 trillion) at the end of October 2025.
• Assets have grown 36.7% year-to-date, rising from EUR 1.96 trillion (USD 2.27 trillion) at the end of 2024.
• Active ETFs attracted EUR 4.36 billion (USD 5.06 billion) in October, bringing year-to-date net inflows to EUR 27.68 billion (USD 32.09 billion)—more than double the EUR 11.41 billion (USD 13.24 billion) reported at this time last year.

Source: ETFGI

Luxembourg 

Luxembourg is the second-largest centre for ETFs in Europe with around EUR 532 billion AuM.

Explore more:

• A guide to launching and operating exchange-traded funds in Luxembourg
• Exchange-traded funds (ETFs): Key developments for Luxembourg’s ETF market
• ETFs: Best practices toolbox – Issue 1 (for members only)

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