European ETF assets are growing significantly with a 10 year CAGR of 18.6% with €2.6tn in assets as at July 2025. Looking forward, many predict that ETF assets will double in size by 2030 and exceed €5tn, the more bullish predict growth in excess of €8tn. With this backdrop, asset managers who don’t have an ETF offering are considering ETF market entry. Some are weighing up entering the market by launching an ETF share class within their existing mutual fund. Some ETF Issuers, with an existing European ETF offering, have launched mutual fund share classes within those wrappers. Many more are taking a serious look at following.
The regulatory picture
In Luxembourg, the Commission de Surveillance du Secteur Financier (CSSF) was the first European regulator to approve listed and unlisted share classes within the same sub-fund and the Central Bank of Ireland (CBI) followed suit in 2018. Whilst both regulators approved this structure, there was some deviation as to how the share classes should be named. Following industry engagement, in 2024 the CBI altered their approach and now permit the “UCITS ETF” designation to be applied at either the share class or sub-fund level, depending on the manager’s choice. This broadly aligns with the approach taken with the CSSF.
Market penetration
In Luxembourg, market penetration of listed and unlisted share classes within the same sub-fund (what we refer to as blended funds), is significant with some of €80bn in assets. Conversely, there hasn’t been a rush to launch blended funds in Ireland, with a limited number of asset managers doing it. However, with the change in policy from the CBI this may act as a tailwind for a rise in the number of managers following the early adopters.
“So why would an asset manager consider this? And what are the benefits to both asset managers and investors? Below are some of the key points”, explains Eamonn O’Callaghan, Group Product Manager ETF at CACEIS.
For Asset Managers
Expand distribution – Many ETF investors have a preference to buy via the ETF wrapper and so may not consider buying a mutual fund, the same can be said for some mutual fund investors. Hence, investors are trading through their preferred wrapper and even if they like a strategy in the other, may not buy it given their preferences. Asset managers who can bridge this divide and launch blended funds, are opening a new distribution channel and selling their product to a new group of investors. They can then reap the benefits of creating an additional distribution channel and increase fund assets.
Leverage existing infrastructure – There are considerations when launching a new UCITS ETF umbrella in terms of time and cost. Managers who opt to launch a blended fund are leveraging off existing legal and operational infrastructure which is already in place. This brings advantages in terms of time to market, leveraging performance history and cost savings.
Test the water – There is always the unknown when setting up a new strategy regarding investor interest. By creating a share class, it provides the opportunity to enter the market in a relatively quick timeframe and gauge investor interest. Thereafter the manager can consider next steps in term of launching a standalone set of products if asset growth meets or exceeds expectations.
For Investors
Enhance investor choice – by providing the option to trade in both share classes, ETF and mutual fund investors can choose to buy the wrapper they prefer depending on their personal preferences and which is the most efficient for them.
Broaden investment opportunities – with mutual fund asset managers launching a listed share class, this provides ETF investors access to an investment strategy they may not have had in a listed wrapper. The same can be said when ETF Issuers launch mutual fund share classes.
Platform restrictions - for discretionary fund managers or brokers who are unable to access listed products via digital platforms, may find it easier to buy the non-listed share class of an ETF.
Before you launch
There are a number of considerations before launching, these include:
- Fund Documentation - needs to be updated to include details of the additional share classes. It’s likely a new application form is required along with a KIID and fact sheet.
- Contracts - a mutual fund asset manager will need to contract with a number of additional parties, namely a listing agent, market-maker (MM), authorised participant (AP), common depositary, paying agent and ICSD. Depending on their listing venue, an iNAV agent will also be needed.
- Pricing - mutual funds use swing pricing whereas ETFs apply NAV+ or actual costs. The treatment of these costs will need to be agreed prior to launch.
- Capital Markets - a capital markets manager is a key person in the ETF team and integral to connections with the AP and MM community. Filling the duties of this role will need to be considered by mutual fund managers.
- Tax treatment – access to the favorable lower taxation rate which Irish domiciled ETFs enjoy on US dividends is not guaranteed if a mutual fund manager launches an ETF share class. Conversely, for an issuer, launching a mutual fund share class may negatively impact the tax status of the ETF.
To conclude
To date, Luxembourg has seen far greater penetration than Ireland. It can be argued that there will be an uptick in launches in Ireland given the change in policy by the CBI. There are clear advantages in taking this route for asset managers and investors, namely speed to market, creating a new distribution channel and increasing choice. Will we see a day where every ETF has a mutual fund share class and vice versa? Perhaps...
CACEIS is supporting ETF Issuers with products domiciled in Ireland and Luxembourg. “We administer more than €125bn in assets making us the 4th largest ETF service provider in Europe. We currently support listed and unlisted share classes for a number of asset managers and have the knowledge, and the technical and operational infrastructure in place to support your journey”, adds Paddy Walsh, Head of Business Development - Ireland at CACEIS.
