Asset managers rushing into Europe’s booming UCITS ETF market risk costly missteps if they fail to build operating models designed specifically for ETFs, according to a new joint white paper from Citi and Deloitte.
The report argues that the next phase of ETF competition will be defined less by product launches alone and more by infrastructure, distribution strategy and capital markets capabilities.
In the paper, UCITS ETFs: Building the operating model that wins, Citi and Deloitte warn that many firms continue to approach ETFs as an extension of traditional mutual fund businesses, despite structural differences in liquidity management, secondary market trading and investor distribution.
The warning comes as the UCITS ETF market reaches a record $3.5 trillion in assets under management, following 43 consecutive months of net inflows.
According to the paper, the market is entering a new competitive phase driven by the rapid expansion of active ETFs, retail savings-plan adoption across Europe and growing demand for specialist exposures delivered through the ETF wrapper.
“Success is no longer determined solely by product ideas or speed to launch, but by the ability to translate strategy into a scalable and resilient platform,” the paper states.
Beyond product launches
The paper argues that ETFs require a fundamentally different operating framework from traditional funds, particularly around liquidity provision, capital markets infrastructure and distribution.
Managers must now make deliberate decisions around ETF sales coverage, market-making support, listing strategies, creation and redemption processes, FX architecture and secondary market execution quality.
The report also highlights how ETF distribution increasingly extends beyond traditional fund selectors to include trading desks, robo-advisors, retail platforms and digital-first investors.
“Liquidity as a sales dimension” is becoming a defining characteristic of ETF distribution, the paper notes, with managers needing to explain not only investment strategies but also how products will trade under real market conditions.
The authors argue that many new entrants underestimate the operational complexity involved in scaling ETF businesses, particularly in Europe’s fragmented cross-border market.
The report outlines three primary routes to market – fully in-house, hybrid outsourcing and white-label platforms – each carrying trade-offs around economics, governance, speed to market and operational control.
Synthetic ETFs regain momentum
One of the paper’s more notable findings is the renewed momentum behind synthetic ETFs, particularly for US equity exposures.
Synthetic replication now accounts for approximately $409 billion of UCITS ETF assets, having grown 54% in just 16 months, according to Bloomberg data cited in the report.
The paper argues that swap-based ETF structures are increasingly attractive because of tax efficiencies, funding benefits and access to markets that may be operationally difficult to replicate physically.
For Luxembourg-domiciled funds investing in US equities, the authors estimate synthetic structures can generate a performance uplift of roughly 33 to 34 basis points annually due to dividend withholding tax treatment.
At the same time, active ETFs are emerging as a major battleground in Europe. While active products still represent only 3% of total UCITS ETF assets, they accounted for 46% of all new ETF launches in 2026 year-to-date, the report said.
US managers eye Europe
The paper also points to mounting competitive pressure as US asset managers prepare to expand more aggressively into Europe’s ETF market.
Citi and Deloitte argue that firms without clear ETF strategies risk being squeezed between dominant passive incumbents and increasingly crowded active and specialist ETF segments.
“The window for differentiated entry remains open, but it will not stay so indefinitely,” the paper concludes.