Ireland is now home to over two-thirds of Europe’s ETF market.

Luxembourg has fallen further behind Ireland as an exchange traded fund domicile in Europe and the gap is expected to widen.

Ireland is now home to over two-thirds of European ETF assets, with a 67 per cent market share and assets under management of €939bn as of the end of January, according to Morningstar data.

Luxembourg is the second-largest domicile with €276bn, representing a 20 per cent share.

Ireland has long been the largest domicile, but the gap has widened in recent years with Ireland’s assets under management growing by 159 per cent from the end of 2018 until the end of January, while Luxembourg’s grew 79 per cent.

Andrea Murray, head of business development at Blackwater Search and Advisory, says: “It’s most likely a gap that will continue to widen.”

She says much of Ireland’s dominant market share is driven by a favourable tax treaty for US equity ETFs, with a 15 per cent withholding rate on dividends, whereas Luxembourg has a 30 per cent rate.

“That’s a significant difference that can eat into much-sought-after returns,” Ms Murray adds.

“In addition, Dublin is home to a growing talent pool of ETF experts and members of the ecosystem, which can only help propel Ireland’s dominance that much further.”

Europe’s ETF market is set to reach $1.7 trillion (€1.6 trillion) by the end of this year and $3.1 trillion by 2030, according to EY.

Abrdn recently registered its first two ETFs in Ireland, while Axa Investment Managers chose Ireland for its first funds when it launched an ETF business last year.

Amundi and BNP Paribas Asset Management both recently announced new ETFs in Ireland, having previously focused on Luxembourg as a domicile.

But Deborah Fuhr, founder of ETFGI, says there are other issues beyond taxation.

“It’s challenging to get the tax treaty between Luxembourg and the US changed, but I don’t think it’s just about that,” she says.

“Many of the ETF issuers globally are headquartered in the US, so historically there was a more natural fit with Ireland, given many Irish people live in the US, plus the English language alignment made it easier.”

Ms Fuhr adds that Ireland’s service provider capabilities were historically more advanced than Luxembourg’s, but that Luxembourg has had a bigger share of ETFs aimed at German, Swiss and French markets.

Despite this, BNP Paribas AM and Axa IM have both cited Germany and Switzerland as target markets for their Ireland-domiciled ETFs.

Lisa Kealy, EY’s ETF leader for Europe, the Middle East, India and Africa, says: “The European ETF market is currently receiving strong investor demand and reporting positive inflows, with Ireland and Luxembourg driving much of Europe’s activity.

“Both markets have built up decades-long credibility in the ETF space, and have strong regulatory frameworks in place.”

She adds that both jurisdictions have expanded their market share within Europe over the past five years, with Ireland growing 26 per cent annually and Luxembourg 19 per cent.

Ms Murray adds: “Our teams are collectively bullish on the growth of not only ETF inflows this year but also new asset managers entering the ETF space.

“All of this will benefit not only domicile hubs like Ireland but also the entire ETF ecosystem.”