DWS has issued an upbeat outlook for the ETF market in 2026, highlighting rising demand for thematic strategies, expanding interest in active ETFs and the growing role of artificial intelligence in product design and investment processes.
In a new Q&A, Michael Mohr, global head of Xtrackers products at DWS, said record inflows in recent years show passive strategies have become firmly established among both retail and institutional investors. He expects that trend to continue, particularly in Europe, supported by a broader and more differentiated range of ETF structures.
Mohr said global developed market equities and thematic exposures would remain key drivers of inflows, alongside new types of ETFs aimed at helping investors navigate volatile markets.
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He also warned that the rapid expansion of providers risks diluting product quality, stressing that transparency and robust design must remain central to ETF development.
DWS expects thematic ETFs to see steady demand next year, with investors continuing to focus on products targeting long-term structural trends and future technologies.
Mohr also predicted strong growth in actively managed ETFs. He said a wider range of providers – from traditional active managers to new market entrants – are entering the space, accompanied by a surge in marketing activity.
While professional fund buyers have historically dominated adoption, he expects greater interest from private investors as the segment matures.
Over time, he believes the market will favour providers that consistently deliver quality and performance.
Artificial intelligence is also expected to expand its influence across the ETF ecosystem.
Mohr noted that AI-based ETFs are already well established, but the technology is also increasingly embedded within index construction and operational processes.
He described AI integration as a gradual evolution rather than a dramatic shift, but one that offers “enormous opportunities” when used responsibly.
On regional prospects for 2026, DWS analysts see continued potential in European equities – particularly the German market – and improving opportunities in US equities if interest rates continue to fall.
Emerging markets remain attractively valued against developed markets, with superior earnings growth expected into 2027.
Healthcare and value stocks are also highlighted as useful sources of diversification.
Bond ETFs remain an important part of the outlook.
Mohr pointed to the launch of new target maturity ETFs at the end of 2025, arguing they offer the predictability of fixed-term bonds alongside the diversification and liquidity benefits of ETFs.
He said these products continue to appeal to investors looking to lock in yields over a chosen timeframe.