By Elle Caruso and James Comtois
Brown Brothers Harriman today released the findings of its ninth annual global report ETFs investor survey, insight into investor sentiment and trends ETFs Marlet.
The report collects responses from nearly 400 institutional investors, fund managers and financial advisors from the United States, Europe and Greater China. A total of 39% of respondents managed more than $1 billion in assets, up from 30% in 2021, according to the report.
After breaking records in 2021, ETFs are poised for another big year in 2022. 84% of ETFs investors – and 88% of the United States ETFs investors — are planning to increase their ETFs allowances, a 12% increase from BBH’s findings in 2021, according to the report
In the United States, the most important considerations when selecting ETFs include fund issuer, expense ratio, and trading volume. In both Europe and Greater China, the volume of trade ranks first, and the ETFs the issuer takes second place, according to the report.
Two significant changes from the last survey include an increase in demand for defined outcomes ETFs product development, with the United States in the lead, as well as investors looking for larger ETFs to allocate their funds to. The survey saw an increase in the number of investors saying they needed a fund to have at least $250 million in assets under management.
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Trends in thematic space
The most global ETFs Investors surveyed plan to increase their exposure to thematic ETFs, with internet and technology themed funds looking the most attractive, according to the survey.
The survey revealed that 85% of the world’s population ETFs investors plan to increase their exposure to thematic ETFs. Over the next five years, 38% of respondents plan to allocate 11% to 20% of their portfolios to thematic ETFs, led by respondents from the United States and Greater China.
ETFs Dave Nadig of Trends explained that today’s “shaky” global markets are behind the popularity of thematic ETFs.
“In this type of environment, investors really want to know what they own and they start to pay more attention to why they own it,” Nadig said. “The transparency of ETFs makes both of these quite simple, as they broadcast their holdings, usually on a daily basis.”
Nadig added: “When the survey was done, the technology and thematic products were ‘what worked’ and the pre-Ukrainian crisis, it was easy to see why. I suspect that if the same survey were conducted today, you would find investors interested in real assets, commodities, inflation protection, energy, etc.
Internet and technology themes continue to attract investor interest, with 64% of global investors planning to add Internet/technology ETFs to their portfolios in 2022. ESG-thematic funds rank second among investors at 56%, followed by digital asset/cryptocurrency funds at 54%.
“ETFs are great vehicles for narrow exposures,” Nadig said. “Although in general I’m cautious to suggest that the average investor should be in a narrow theme, for global macro and event-driven investors, the ability to quickly put on or take off exposure to, for example , Chinese internet names or a global vaccine development, make them attractive.In these cases, thematic ETFs are more likely to replace individual stocks than mutual funds in investors’ portfolios, especially at the hedge and institutional fund level.
Interest in active ETFs shows no signs of slowing down
Active ETFs accounted for around 10% of global net inflows in 2021, driven primarily by US investors. The survey shows a pronounced increase in investors’ expected allocation to globally active ETFs, with 78% of respondents planning to increase their exposure to active ETFs this year (up from 65% in 2021).
This year’s findings on the use of active strategies highlight the evolution of portfolio construction. Defined outcome ETFs topped the list of our respondents when asked in which categories they would like to see more active strategies. This suggests that investors are looking for liquid and inexpensive hedging tools in their portfolios in 2022.
Global equities also ranked highly, highlighting that specialization in overseas markets could be a differentiator for assets ETFs managers.
In a survey question aimed only at US respondents, 50% of respondents said they would “definitely” buy a semi-transparent asset. ETFs in the next 12 months, followed by “maybe” at 36%. Only 14% of respondents do not plan to buy a semi-transparent asset ETFs or do not know the structure.
ESG remains a priority for global investors
Although he cited the lack of a consistent methodology as an obstacle to ESG adoption, 89% of investors plan to add ESG investments to their portfolios. In Europe, nearly half of respondents weight their allocation towards funds that promote “environmental and social characteristics and good governance”.
US Investors Drive Demand for Defined-Outcome ETF Product Development
The survey also revealed a surge in fixed income securities ETFs year-over-year interest from US investors. Almost all US investors (86%) plan to increase fixed income ETFs allocations over the next 12 months, up significantly from 67% in 2021.
“For years, many investors and advisors who used ETFs used them exclusively for equities or alternatives like gold, relying on existing relationships with active bond mutual fund managers,” said Nadig. “Many of these managers are now executing similar strategies in the most efficient and tax-liquid sectors. ETFs wrapper, so the change makes a lot of sense even if you don’t believe there’s a security rotation going on.
Nadig added: “Fixed income is a very challenging asset class right now due to inflation and interest rates, but regardless, bonds will remain at the heart of many portfolios. in the future, and ETFs will simply make sense as target vehicles.”
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