ETF funds are attracting more and more young investors who are taking their first steps on the stock market. Surprisingly, the number one reason for investing in ETFs is not the fees, according to one study. Active funds, although they may sometimes underperform, offer other advantages.
Created in the United States in the 1990s, ETFs – funds that replicate a market index – are particularly attractive to young investors. A simple solution, but one that is contested by actively managed funds. However, the European ETF market has grown strongly over the last three years.
A recent study by asset management giant BlackRock explains that the phenomenon is growing. ETF (exchange-traded fund) ownership rose by 42% across Europe compared with last year (2024).
The number of ETF savings plans, used by investors to meet their long-term investment objectives, is set to quadruple over the next five years, according to this 15-country study by investor portal extraETF, commissioned by BlackRock.
In Europe, the number of investors has risen from 102 million in 2022 to 117 million in 2025, a growth that far exceeds the adoption of cryptos in some countries.
ETF investors are often young. Just over half of them are under 34, according to the study. This is often their first investment. But this first decision is made in relative solitude, with just a few pieces of information, usually found on social networks.
Active managers are going to fall off their chairs..
But even more surprising, and enough to make many an active fund manager fall off their chair, this decision was taken primarily with a view to diversification, rather than the cost that many people imagine. The cost excuse is therefore a false impression. But it is also possible that these young investors ignore the cost aspect of their first investments… The desire to exceed the profitability of a savings account is also part of their motivation to invest.
The simplicity of buying or selling an ETF offers comfort to around a third of respondents, a good way to take the first step towards investing. And fees, which are much lower than for traditional funds, only come 7th in the list of advantages cited by those surveyed.
The study predicts an additional 1.6 million investors in 2025 alone (55% of whom will therefore be taking their first steps on the stock market), probably encouraged by the very good performance of the markets but also made aware of the buzz triggered by the actions of AI in the financial sphere.
The number of ETF investors is growing fastest in France. But German investors are still in the lead, with the largest number of investors favouring ETFs.
ETFs, the fruit of technology
Millions of people have invested for the first time because digital tools have broken down barriers and you no longer need to be very rich or very skilled to invest.
Trade Republic has successfully surfed this wave: “We have democratised access to the financial markets for people who are just starting out or who want to invest regularly and simply”, explains Vincent Grard, Country Manager France at Trade Republic.
“At a cost of €1 per transaction: 1 euro per purchase and 1 euro per sale, whatever the amount of the order, the pricing is simple for investors. Investors can also programme regular periodic purchases (weekly, monthly, quarterly, etc.) of a fixed amount (e.g. €100 on a World ETF), with no transaction fees (excluding TOB tax).
But according to ODDO, there are fundamental differences between managing an ETF and an active fund. The same applies to risk management in turbulent markets, where the manager of an active fund can adjust his portfolio at any time to limit the downturn or direct sales that have become necessary towards selected assets that offer better liquidity.
When markets fall rapidly, liquidity can be in short supply. And an automatic sale of an ETF asset, which operates on a mechanical basis, will be made at random in the market… with a very random execution price in an environment caught up in the panic of a downturn.
The manager can also adjust his portfolio (stop/loss, etc.) to reduce the impact of the downturn on the portfolio’s value.
Another example is the possibility of better anticipating financial downgrades of certain issuers in the credit world, without waiting for a catastrophe before selling. ETFs, on the other hand, are obliged to blindly follow indices, which are only updated periodically.
Then the ESG aspect can be better adapted, more sophisticated and updated in a portfolio, with the tact of an active manager. A manoeuvre that cannot be carried out in an ETF that is too mechanical, the specialists at ODDO wisely add.
Funds that invest in interest rates more often beat ETFs
Didier Bouvignies, Managing Partner, Head of Asset Management, Rothschild & Co Asset Management underlines an important point. ETFs are not always sovereign Fixed income managers often outperform ETFs, which is not the case for equities.
The manager cites two main reasons. In fact, rate management is made up of a multiple number of choices; deeper and wider. The world of rates is more heterogeneous, more diverse. The manager can find pockets of yield in a market in perpetual motion, pockets that are sometimes absent from indices that are often very generalist (such as a new or lesser-known issuer). ETFs are limited to replicating a static index. And the appetite for fixed-income ETF products is weaker, confirms the specialist from Rothschild & Co Asset Management.
It should be noted that, as far as equities are concerned, taxation in the United States does not favour active funds, as they are subject to capital gains tax on arbitrage.
“But if internal costs are higher in actively managed funds, it’s because the manager also has to pay the distribution networks around 50% of these costs.
However, investors who pay these fees can benefit substantially from this intermediary, who can advise them and, above all, prevent them from making mistakes. For example, preventing him from selling too soon, because the temptation is strong when there is a capital gain Warren Buffet was amused by this in one of his quotes to”water the weeds and pull up the flowers”.
An investment adviser can provide support and emphasise the importance of retaining winning investments. Young investors are often in a hurry to sell their winning positions, often prematurely. Often with a target gain of 10%, limiting their long-term growth potential. On the other hand, does not divest itself of losing investments (weeds). Often by mistake, They cling tenaciously to under-performing or disappointing companies, hoping for a turnaround, and sometimes go so far as to strengthen their position (by ‘watering’ the weeds).
Didier Bouvignies added: “And when the markets fall, emotion takes over. Young investors risk selling in a panic. According to the statistics, they often sell close to their lowest prices. The presence of an advisor can prevent such mistakes.
“Index-tracking took off in 98/99”, explains Didier Bouvignies, “before the pain of the internet crash destroyed the best hopes of these young investors who had no parachute. Investors can also benefit from tax advice on their investments. Another forgotten aspect”.
And multi-asset, asset, bond/fixed income funds can also vary their allocations according to the weather.
For Stéphane Van Tilborg, Country Head Benelux at LFDE, ETFs are trapped in constant management and offer no surprises.
“With ETFs, there are no surprises. They follow market trends, there is no alpha. A manager may overweight convictions, adapt by increasing exposure to risk, or reduce risk as the analysis progresses. For example, our Echiquier Worlds fund had just 19 positions a few weeks ago, giving more weight to the strongest convictions. And it’s important not to judge a manager over the course of a year, but rather over a longer period. Mid-cap funds often outperform ETFs, because it is easier for a manager to stand out from the crowd with a more diverse and varied selection of stocks that are less widely followed (because of a larger market) or too small by analysts. Active management can unearth more profitable opportunities in small/mid caps. Then an investor, on the same theme, can opt for a manager who offers a lower or higher risk”.
