The Nordic ETF market is entering a new stage. Investors no longer see the exchange-traded fund primarily as a passive product or an unfamiliar alternative to a traditional mutual fund. Increasingly, it is simply another way to implement an investment strategy. That change is visible across the region, although countries and client groups are moving at different speeds. Erkki Rusi, head of ETF distribution for the Nordic region at J.P. Morgan Asset Management, says interest has increased among clients ranging from large institutions and asset managers to digital investment platforms.
“I’ve been in this role for two years, and there has been a great deal of development during that period,” Erkki Rusi says. “We’re seeing more activity and interest across the Nordic region. Adoption still differs between countries and client segments, but the general direction is clear.”
The emergence of active ETFs has helped broaden the market. Investors once associated ETFs mainly with index exposure, but the wrapper can now provide access to a growing range of actively managed strategies. For J.P. Morgan Asset Management, the decision to concentrate on active ETFs reflects the firm’s wider investment approach.
“Our core competence is active management, across both equities and fixed income,” Erkki Rusi says. “The passive ETF market was already well served, so the question was where we could add value. Combining the ETF wrapper with our active investment capabilities was the natural answer.”
The firm didn’t simply convert a range of existing mutual funds into ETFs. Instead, it developed strategies specifically for the ETF market, according to Erkki Rusi. The aim was to combine the trading and implementation features of the wrapper with active portfolio management. This distinction matters because clients increasingly begin their conversations with an investment objective rather than a preference for a particular vehicle. The discussion may focus on regional equity allocation, fixed income exposure or portfolio diversification. Whether the final investment takes the form of a segregated mandate, mutual fund or ETF can come later.
“Many conversations start with asset allocation and what the client is trying to achieve,” Erkki Rusi says. “We then look at how active management can help meet that objective and which structure provides the best way to implement it.”
The Nordic ETF opportunity spans three broad client groups: retail investors, asset managers and institutional investors and each requires a different approach. Retail assets remain relatively modest compared with the institutional market, but digital platforms are making ETFs directly accessible to a broader audience. Investors with brokerage accounts can now select ETFs themselves rather than only gaining exposure through a managed portfolio or an investment product chosen by a bank.
“Digital platforms are changing the way individual investors can access ETFs,” Erkki Rusi says. “The growth rates are significant, even if the assets are still smaller than in some of the more established channels.”
The number of products available can, however, make selection difficult. A platform may offer investors a very large ETF universe without giving them an obvious way to distinguish between strategies. This is encouraging platforms to work with asset managers that can help explain products, organise the available choices and improve investors’ understanding of the market. Asset managers and portfolio builders form a second important group. They can use ETFs as building blocks in multi-asset funds, model portfolios and other allocation solutions.
“If you’re managing a large multi-asset portfolio, an ETF can be a very efficient building block,” Erkki Rusi says. “That part of the market has adapted quickly because the benefits for portfolio construction and asset allocation are clear.”
The third group consists of institutional investors. Large Nordic institutions have used ETFs for many years, particularly when they need to change an allocation or move market exposure efficiently. Individual allocations can also be substantial. For some institutions, the ETF is considered alongside pooled funds and segregated mandates. Others have a clear preference for using an ETF whenever the required strategy is available in that format.
“The final structure depends on the client and its investment strategy,” Erkki Rusi says. “But some institutions are very clear that, where possible, they want to implement an allocation through an ETF.”
One development that connects these different client groups is the emergence of actively managed portfolios held inside a single ETF. J.P. Morgan Asset Management has created three ETFs based on its long-term capital market assumptions, the annual research through which its multi-asset team assesses expected long-term returns. The ETFs offer defensive, moderate and aggressive risk levels and invest in underlying active ETFs.
The allocations are actively managed, although their focus on long-term expected returns means they aren’t designed around constant short-term changes. “The research behind our long-term capital market assumptions has now been made investable through these three ETFs,” Erkki Rusi says. “They bring together long-term asset allocation, diversification and active management in a single product.”
Such portfolios may provide a more accessible starting point for investors who don’t want to select and combine several individual ETFs. They also demonstrate how the wrapper is moving beyond narrow market exposures and becoming a vehicle for complete investment solutions.
ETF adoption varies considerably across the Nordic countries. Finland is the region’s most developed institutional market, according to Erkki Rusi. Finnish institutional investors began using ETFs during and after the global financial crisis, when the products offered an efficient way to move risk and adjust portfolio allocations. “Among the large investors in Finland, almost everyone uses ETFs to some extent,” he says. “They’ve been part of the institutional toolkit for a long time.”
Sweden is seeing increased adoption, particularly among asset managers. The market hasn’t yet reached the same level as Finland, but more clients are beginning to incorporate ETFs into their portfolios, according to Erkki Rusi. Denmark and Norway remain at an earlier stage of adoption in overall usage, although retail demand and digital distribution are creating new areas of growth. In Denmark, certain market-specific obstacles have continued to favour other fund structures, while activity through Norwegian retail platforms points to a broadening investor base.
Local product features could also support adoption. J.P. Morgan Asset Management has begun introducing SEK share classes for some ETFs to make the products easier for Swedish investors to access. “Mutual funds offered to Swedish investors are commonly available in Swedish kronor, so ETFs should be able to provide the same feature,” Erkki Rusi says. “We’re a global firm, but we also need to respond to the practical requirements of each local market.”
Active fixed income ETFs are another important area of development. Traditional fixed income investing already involves active choices about duration, credit quality, geography and issuer selection – yet much of the first generation of fixed income ETFs focused on tracking bond indices. J.P. Morgan Asset Management is seeking to bring a broader range of actively managed fixed income strategies into the ETF format.
“Fixed income investors rarely think only in terms of buying an index,” Erkki Rusi says. “They’re looking for a considered exposure. Bringing active fixed income portfolios into ETFs is therefore a very natural development.” The same argument applies to equity markets. Heavy concentration in major indices has made diversification a more prominent part of client discussions, particularly in relation to US and global equities. Active strategies can offer investors an alternative to accepting the sector and company weights embedded in a standard market-capitalisation index.
