Passive funds' share of the European fund management market will total a quarter by 2025, according to a recent report by Moody's Investors Service.
The group said the growth would be driven by the continued uptake from institutional investors and increasing regulation in the retail space.
Passive funds made up 14% of the European market at the end of 2017 with this set to rise to 22% by 2025 in Moody's' base case scenario and 27% in its faster scenario.
The reason for the slow uptake in the retail space, Moody's said, was due to European banks, which have dominated fund distribution, prioritising their own more expensive products rather than ETFs as "they do not generate large commissions".
However, Moody's said this was set to change with the introduction of new regulation such as MiFID II, which came into effect in January.
The group pointed to the new rules that ban funds across the bloc from paying commission to independent advisers, which "encourages" them to seek out "value for money" investment solutions.
"MiFID II has improved visibility over the fees charged by fund managers, and will therefore likely induce cost-conscious retail investors to seek out cheaper index funds and ETFs," Marina Cremonese, senior analyst at Moody's and author of the report commented.
"These [regulatory] changes will likely push retail investors towards cheaper passive funds, including ETFs, just as they become more widely available through investment platforms and robo-advisers."
In the UK, the take-up of ETFs has been slow by IFAs, despite the introduction of the retail distribution review (RDR) in 2013.
However, Moody's predicted this was set to increase as platforms had started to add ETFs to their shop windows.
"The digitalisation of distribution channels will also underpin retail demand for passive investments across Europe.
"Retail interest in ETFs mostly comes via investment platforms, online banking, and robo-advisers - automated asset management services that use algorithms to manage customer portfolios, with minimal human involvement."
Cremonese forecasted BlackRock, DWS and Lyxor to benefit the most from this increased take-up of passive products due to the scale and liquidity advantages they held. She added Vanguard could become a "major competitor" given its position in the US.
"The remaining traditional active asset managers may struggle to compete profitably in the market for core index products, and have therefore been focusing on niche areas such as specialized ETFs and smart beta products," Cremonese continued.
"The competitive landscape in this area remains open as there are no clear market leaders, enabling new entrants to gain a foothold in the growing passive or quasi-passive product category."
Last year, Moody's forecasted passive funds' share of the US market would surpass 50% no later than 2024.