The Exchange Traded Funds (ETFs) market has reached a major milestone. Vanguard’s S&P 500 ETF, listed in the US, recently became the first ETF in the world to have more than $1tn invested in it.
It’s a big number, but there is a bigger story about how investing has changed. What was once a relatively specialist part of the market has become a mainstream way for millions of people to invest.
This article isn’t personal advice. If you're not sure what is right for you, ask for financial advice. Remember, all investments and any income from them can rise and fall in value, so you could get back less than you invest.
The rise of index investing
The first ETF in the US was launched in 1993; Europe’s first came in 2000.
In their early days, ETFs were linked to the rise in popularity of index investing. Many ETFs track the performance of an index, like the S&P 500 or FTSE All-Share, by investing in a basket of investments like shares or bonds. They trade on stock exchanges, just like shares, meaning that their price fluctuates throughout the day.
For many investors, the appeal of index-tracking ETFs is simple – typically low cost, easy-to-understand and can give broad diversification in a single investment.
Low costs have been one of the key drivers of their popularity. As the ETF market has grown, competition between providers has pushed charges lower, particularly for broad index-tracking products. That’s been good news for investors because lower charges mean less of the return is eaten away by charges over time.
Today, the US still dominates the ETF market, accounting for 69% of assets. But trends beginning in the US often make their way across the Atlantic, and Europe’s ETF market is now quickly growing, too.
More investors are using ETFs
After a record-breaking 2025 for money invested in European ETFs, the market is on course for another standout year. A net $257.5bn was invested in European ETFs in the first half of 2026, up from $163.0bn at the same time last year.
ETFs are not just for professional investors. Across Europe, more and more retail investors are using them as part of everyday investing. This is being helped by easier access through investment platforms and regular savings plans. It also reflects the broader rise of index investing.
Although both index funds and ETFs track the performance of an index, there are some differences. ETFs can be bought and sold throughout the day at a known price and are often more transparent about their holdings, whereas index funds are usually priced just once a day.
Both offer a low-cost way to invest, though ETFs can be cheaper than equivalent index funds because they’re generally easier for providers to launch and manage.
However, some investment platforms offer discounts on fund charges, so it's important to compare costs and take any dealing charges into account before investing.
In 2025, more than half of German retail investors owned ETFs – across Europe as a whole around 1 in 4 retail investors held ETFs. Since 2020, the number of people investing in ETFs in the UK has increased by about 27% a year on average, making them one of the country's fastest-growing investment products. This growth meant that in 2025 more than 1 in 10 UK retail investors held ETFs.
Vanguard estimates that the number of European ETF investors could reach 100 million by 2035, up from around 30 million today.
The evolution of active ETFs
One of the fastest-growing areas of the asset management industry is active ETFs. Instead of simply tracking an index, active ETFs aim to outperform a certain benchmark. Although of course that is never guaranteed.
The active ETF market has grown as providers increasingly use the ETF structure to offer active strategies. This is so investors can benefit from greater transparency, trading throughout the day and potentially lower charges than traditional active funds. Though, they are more expensive than low-cost index-tracking ETFs.
In the US, active ETFs now outnumber index trackers. 80% of ETFs launched in the past year have been active, though index trackers still account for most of the money invested in ETFs.
There are certain tax benefits for holding ETFs over funds in the US, which make active ETFs attractive for US investors. This doesn’t apply to the UK though and might explain why the active ETF market is still relatively small this side of the Atlantic – albeit growing quickly. Assets in European active ETFs have grown at an annual rate of 48% in the last five years, and 41% of ETFs launched over the past year have been active.
Even so, as it stands active ETFs account for only about 4% of the total European ETF market.
ETFs are becoming more specialised
The rise of active ETFs is part of a broader trend.
The ETF market has evolved far beyond traditional index trackers, giving investors access to a much wider range of investment approaches.
For example, thematic ETFs let investors access specific segments of the market like defence, space, the smart grid and robotics. These ETFs aim to capture long-term trends and can provide more targeted exposure than broad market trackers. Although, because they focus on a narrow area of the market, their performance can be heavily influenced by the fortunes of a particular theme.
They usually track custom-made benchmarks, which are created to capture a particular theme. This means that investors are likely to pay higher fees with a thematic ETF compared to an ETF tracking a major index. They can also be more volatile and less diversified, so they should make up only a small part of a well-diversified investment portfolio.
Income-focused ETFs are also becoming more popular. Some use derivatives to help generate income, giving investors access to more specialist strategies. Though, derivatives are more complex and add risk.
Why this matters for investors
The growth of ETFs is positive in a lot of ways. It’s given investors more choice, helped cut costs and made it easier to build diversified portfolios. It’s been driven not only by more investors using ETFs but also by innovation.
However, investing in ETFs won’t be right for everyone. As with any investment, investors should invest only if an ETF’s objectives match their own, they understand its risks and charges, and it forms part of a diversified portfolio.
The first $1tn ETF milestone highlights just how far the ETF market has come. What began as a simple way to track an index has evolved into a much broader investment toolkit, giving investors access to everything from global stock markets, bonds and commodities to active, thematic, style and sector strategies.
As more investors embrace ETFs and providers continue to innovate, the European ETF growth story looks far from over.