Executive summary
Exchange-traded funds (ETFs) continue to draw record assets in the U.S. and Europe, but the path to growth looks very different in each market. With ETFs surpassing $20 trillion globally, managers that want to stand out from the competition will need to launch tax-efficient, jurisdiction-tailored products that can scale across borders. Bringing these considerations into product design early can help firms navigate cross-border complexity and position ETFs to attract and sustain long-term AUM.
This is the first of two articles examining ETF growth strategies in the U.S. and the EU. Part two will focus on operating-model design for scaling ETF platforms in these markets.
Local market strategy and tax design key to long-term AUM
ETFs have quickly become one of the fastest-growing segments in asset management. By the end of 2025, global ETF assets had climbed to nearly $20 trillion, up from $15 trillion the prior year.
The U.S. and Europe account for a large share of that growth. In the U.S., ETFs held nearly $13 trillion in assets by the end of 2025. Europe’s market reached just over $3 trillion during the same period.
But regionally, ETFs operate differently, and asset managers, product teams and distribution leaders evaluating ETF launches across jurisdictions need strategies that account for those differences to scale successfully.
“Expanding ETFs — whether from a single geography or as part of a broader platform strategy — inherently involves risk,” said Judd Wright, Grant Thornton Audit Services Partner. “Regulatory requirements, investor preferences, market liquidity, distribution channels and competitive dynamics vary significantly by region, and a one-size-fits-all approach can lead to misaligned products, higher costs and weak adoption.”
Awareness of those risks is particularly important for U.S.-based managers entering the European market, said Julieanne Nolan, Grant Thornton Financial Services Audit Partner.
“Managers that apply a U.S.-style ETF strategy in Europe often underestimate how much local tailoring is required to gain distribution traction and early flows,” Nolan said.
Key trends and differences driving ETF AUM: U.S. vs. Europe
ETFs dominate both markets, but barriers differ
Although ETFs have grown rapidly in both the United States and Europe, the structures of each markets differs materially.
| Market characteristic | U.S. | Europe |
|---|---|---|
| Market concentration | Dominated by a few large issuers | Concentrated among major issuers, but spread across multiple countries and exchanges, increasing reporting, listing and operational complexity |
| Trading environment | Primarily centralized exchange trading with transparent liquidity, enabling assets to scale quickly | Trading occurs across multiple exchanges and often through dealer‑facilitated request‑for‑quote (RFQ) platforms |
| Distribution channels | Financial advisers, brokerages and model portfolios drive product adoption and provide consistent inflows | Banks, advisers and investment platforms play a significant role in determining product access for institutional and retail investors |
| Regulatory structure | Single national regulatory framework | Multiple regulatory regimes across countries |
| Fund domicile strategy | Funds are typically domiciled in the U.S. | Many asset managers choose Ireland for operational and tax advantages and its sophisticated ecosystem, though other domiciles are also considered |
One of the key differences between the U.S. and Europe is Europe’s fragmented exchange landscape and regulatory regimes across markets. But policymakers are beginning to explore ways to simplify cross-border activity. In late 2025, the European Commission proposed a market-integration package aimed at creating a more unified EU financial services market.
The proposal includes enhancements to the EU Consolidated Tape to improve trading transparency and a proposed EU-wide depositary passport, which could streamline operational requirements for cross-border funds.
If implemented, these measures could make it easier for ETF managers to distribute funds across Europe and operate ETF platforms more efficiently across jurisdictions.
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Both markets are expanding, but with different modes of scale
The path to scaling ETF products in the U.S. and Europe involves different market structures, distribution channels and tax considerations.
In the U.S., the shift toward ETFs is already reshaping how firms bring new funds and strategies to market. In 2025, ETF launches far outnumbered mutual fund launches. As the ETF market matures, product teams and portfolio managers are becoming more selective about the products they launch.
“A few years ago, the focus was largely on launching ETFs quickly to gain scale,” Wright said. “Today, firms are being much more deliberate about the strategies they bring to market, including active ETFs and bringing existing fund strategies into the ETF format, such as conversions from mutual funds and hedge funds, launching ETF share classes or rolling up separately managed accounts.”
In Europe, growth looks different. Because trading is more fragmented across exchanges and jurisdictions, ETF liquidity is often accessed through dealer networks and RFQ platforms rather than visible exchange trading alone. Distribution is also more intermediated, with banks and advisory networks playing a larger role in directing investor flows.
“As a result, for many Europe-based managers, the challenge isn’t getting an ETF approved — it’s achieving visibility and early scale,” Nolan said. “Because capital flows are often directed through banks, platforms and advisers, distribution access and liquidity support become critical for early-stage ETFs to gain traction.”
Tax outcomes differ and influence long-term AUM potential
One of the structural advantages of an ETF — particularly in the U.S. — is its ability to manage capital gains more efficiently than traditional mutual funds. That advantage has made ETFs attractive to investors and asset managers alike.
“In the U.S., ETFs operate differently than mutual funds,” said Chris Scarpa, Grant Thornton Tax Services Partner. “Because they transact with authorized participants through create-and-redeem transactions, they can rebalance portfolios using in-kind redemptions. Those transactions receive favorable tax treatment, which is what allows ETFs to operate more tax-efficiently than traditional mutual funds.”
Tax considerations are also shaping how U.S. managers bring existing strategies into the ETF structure, but the tax treatment for those structures is still evolving.
“Regulators are paying closer attention to how some of these structures are being used,” Scarpa said. “That creates uncertainty around how some of these strategies may ultimately be treated from a tax perspective, which is why firms need to evaluate those implications early in the product design process.”
In contrast, tax efficiency in Europe depends far more on how the fund is structured and where it is domiciled.
“In Europe, tax efficiency isn’t built into the ETF structure the way it often is in the U.S.,” said Robert Fitzgerald, Grant Thornton Financial Services Tax Partner. “Managers need to think carefully about fund domicile and treaty access.”
When ETFs invest in foreign securities, dividends and other income are often subject to withholding taxes in the country where the investment is located. Access to favorable tax treaties can reduce those taxes and improve investor returns.
“For example, Ireland has become the dominant domicile for European ETFs in part because its tax treaty network reduces U.S. dividend withholding taxes from 30% to 15% for qualifying funds,” Fitzgerald said.
Investor tax rules can add another layer of complexity. As retail participation in European funds increases, ETFs may need to meet specific tax reporting requirements in certain jurisdictions to attract local investors.
“An investor from the UK investing in a fund based in Ireland or Luxembourg will want that fund to be a reporting fund so that gains are taxed as capital gains tax rates rather than income tax rates,” Fitzgerald said.
Tax considerations for firms launching and scaling ETFs
When launching ETFs across jurisdictions, firms need to tailor their product strategy to local markets — and that includes tax considerations.
“Whether a firm is launching a new ETF or expanding an existing platform, tax should be part of the conversation from the outset,” Scarpa said. “The tax questions will vary depending on the strategy, the assets involved and how the product is funded, but they should always be considered early in the planning process to better position their product to capture and retain AUM.”
For example, firms converting existing strategies into ETF structures — whether from mutual funds, hedge funds or separately managed accounts — face a range of tax considerations before the product ever reaches investors. These can include how the strategy meshes with the tax rules, whether portfolio assets can be redeemed in kind through the ETF creation-and-redemption process and how certain income types will be treated for different investor groups.
“One wouldn’t want to make tax the primary driver of a product decision, but to ensure the strategy is structured in a way that allows the fund to operate efficiently from a tax perspective,” Scarpa continued.
Key tax issues asset managers should consider before launching an ETF
- Fund domicile: Where the ETF is legally based can determine access to tax treaties and withholding tax rates on underlying investments.
- Investment strategy and asset mix: Certain asset classes may create different tax outcomes or affect whether in-kind redemptions are feasible.
- Withholding tax leakage: Taxes applied to dividends or interest in foreign markets can reduce investor returns if not managed efficiently.
- Investor profile: Tax outcomes may differ depending on whether investors are institutional, retail or located in different jurisdictions.
Aligning tax, governance and reporting frameworks
Beyond product design, coordination between tax and audit teams is also critical when building scalable ETF platforms. As ETF platforms expand and strategies become more complex, the demands on financial reporting and governance increase as well.
“As ETF strategies become more sophisticated, reporting and governance become more complex due to changes in fund-level accounting, different tax treatments, financial statement disclosures and valuation oversight — which is why boards need to understand what the funds are investing in and the associated risks so they can appropriately oversee those vehicles,” Wright said.
Nolan added that early alignment between tax and audit teams can help firms avoid costly adjustments later.
“For smaller platforms, the challenge is building reporting and operating frameworks that scale efficiently without adding disproportionate cost or operational drag. The earlier those discussions occur around fund structure, service providers and reporting processes, the easier it is to ensure efficient reporting processes and avoid surprises during the audit process,” Nolan said. “It also allows management teams to focus more on distribution and asset gathering rather than revisiting operational or reporting decisions after the platform has already grown.”
Next: Optimizing the operating model for ETF growth
ETFs may be a global investment vehicle, but the approaches to growth are not global in practice. Asset managers that want to successfully launch and scale ETFs across borders must tailor strategies for each region across each of these pillars:
- Market structure
- Tax strategy
- Operational model
- Distribution success
In our next article, we’ll explore how firms can translate these local considerations into product design, operating models and infrastructure that support scalable and profitable ETF growth.
Contacts:
Partner, Audit Services, Grant Thornton LLP
Partner, Grant Thornton Advisors LLC
Judd, has over 15 years combined experience in the investment management industry. Currently he leads the Mid-Atlantic Asset Management Audit Practice at Grant Thornton where he is responsible for the audits of open and closed-end registered funds, alternative investment funds (including hedge funds, private equity funds, fund-of-funds) and collateral managers.
Philadelphia, Pennsylvania
Industries
- Asset Management
Service Experience
- Audit & Assurance Services
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