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ESG, fixed income and active ETFs lead global demand


Globally, 74% of investors plan to increase their allocation to ESG investments over the coming 12 months.

Globally, 74% of investors plan to increase their allocation to ESG investments over the coming 12 months.

ESG and active are the most requested form of ETF by investors, while they turn to fixed income ETFs during a time of heightened market volatility, according to a new survey by Brown Brothers Harriman.

The survey gathered opinion from 300 institutional investors, financial advisers and fund managers around the world on various topics about the future of ETFs.

European ETF market surpasses $1trn milestone

It found that ESG was the most popular area in which European investors would like to invest, while active ETFs topped the US rankings. Managed risk/low volatility came in first for Greater China, but ESG was a close second.

ETFs are set to continue their growth story – the industry now worth $6.3trn (£4.8trn) – as 69% of investors plan to increase their allocation to the market over the next year.

In a sign of this ever-increasing industry, 44% of investors now seek a minimum assets under management of $100m before they will invest in a new ETF, with 47% still requiring $25m-$100m before they will commit themselves.

Globally, 74% of investors plan to increase their allocation to ESG investments over the coming 12 months, and nearly all seek to have some exposure to ESG ETFs over the next five years – 3% of US and 1% of European investors foresee no exposure five years from now. However, investors seem reticent to date to put their money where their mouth is, as ESG ETFs only represent $52bn of the industry’s assets, according to data from ETFGI.

On a thematic level, environment/sustainability only came in third place, with 18% of investors naming it as the ETF they are most interested in. Internet/technology dominated, with 27% of the vote, while robotics/AI edged out ESG with 19%. Cryptocurrency (13%) and healthcare (12%) rounded out the top 5, while cannabis ETFs got an honourable mention with 4% of investors describing it as the thematic ETF they were most interested in.

Actively managed ETFs received a boon as the semi-transparent model was approved in the US and Hong Kong saw its first active ETF launch in 2019. More than half (57%) of investors expect their exposure to increase over the next 12 months, with US (62%) and Greater China (63%) much more excited about the prospect than their European counterparts (43%).

Despite the semi-transparent ETF receiving approval and positive noise, 85% of investors still want their ETF to disclose its holdings at least weekly.

Global ETFs grow by €495bn in 2019

During periods of heightened volatility, fixed income ETFs are the top pick for investors, with 20% globally turning to the investment when the market is unstable. Of these ETFs, there is a wide variety of options in which investors are interested.

US Treasury ETFs top the rankings, with 39% of investors picking this as one of their options, while investment grade corporate bond and short-duration/money market each picked up 37% of the vote. Emerging markets, high-yield credit and Treasury inflation-protected securities are each part of the toolbox for over 30% of investors.

However, there are many concerns surrounding fixed income ETFs, with 32% of investors citing liquidity of underlying bonds as an issue and 26% nervous about the expense ratio.



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