Investors increasingly shunning active mutual funds for ETFs

Cost efficiency is the main reason cited for using ETFs

Cost efficiency is the main reason cited for using ETFs

ETFs are attracting more supporters as 57% of investors said they have replaced an active mutual fund with an ETF, a 39% increase from 2020, according to a survey by TrackInsight.

The ETF industry continued its growth trajectory amid the pandemic, with assets surging to $7.6trn last year and product launches showing no sign of slowing down.

While many investors use ETFs as an alternative to direct investing (51%), the majority of investors that participated in the TrackInsight Global ETF Survey 2021 are shifting from mutual funds (passive or active) to ETFs. Notably, 57% report using ETFs to replace actively-managed mutual funds.

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Most investors cited low costs (84%) as the main driver of their investments in ETFs, with diversification (77%) and liquidity (68%) also mentioned.

Equities remained the most heavily purchased exposure, with 55% of respondents investing more than 40% of their portfolios in equity ETFs, according to the TrackInsight survey.

Jean-René Giraud, founding CEO of TrackInsight, said: “The results of this year’s survey reveal a maturing industry which is rapidly adapting to new types of products, new types of investors and new digital ways of operating.

“There are many lessons to be learned from the Covid-19 crisis, but perhaps the most enduring of which is that resilience and adaptability is the essence of survival, and the world’s largest and most sophisticated investors have been quick to embrace many new ideas that are now available as ETFs.

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“Active strategies, thematics and new assets like SPACs and cryptocurrencies have helped redefine what ETFs are and are also paving the way for future growth. With the current tailwinds and seemingly unstoppable rise of ETFs, the industry is on track to near the $10trn AUM milestone this year.”

At the end of 2020, 30% of investors had more than 20% of their portfolios in thematic ETFs – of which 17% had an allocation over 40%. When it comes to plans to adjust exposure to thematic ETFs, the survey showed investors remained as bullish as last year, with more than half (52%) expecting their exposure to increase by more than 5% in the next two to three years.

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Even though research has shown that thematic strategies tend to underperform the broader market after launch, two-thirds of investors quote making strategic long-term bets as one of the main reasons behind their investment in thematic ETFs. 56% of them state their investment reflects their solid conviction about a specific trend, such as technology and ESG sectors.

Still, the figures show that despite tripling assets in 2020, 50% of investors still have no exposure to ESG ETFs.

Olivier Paquier, head of ETF distribution in EMEA at JP Morgan Asset Management, said: “When you pair TrackInsight’s survey results with what we’ve seen in terms of flows into ETFs over the past year, it’s clear that investors’ understanding of the role of ETFs in portfolios continues to deepen; this includes many investors diversifying their exposure beyond traditional ETFs.

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“We’ve seen growing interest in thematic, actively managed and ESG ETFs; trends which are still at their early stages, both in terms of investor uptake and product offerings. We believe the ESG ETF trend in particular has a lot of room for growth.

“In terms of what’s driving ETF selection more generally, this year’s survey findings reinforced how the overarching attributes of ETFs – cost efficiency, price transparency and liquidity – that have served investors for more than 30 years, continues to remain in focus.”

The survey included 373 professional investors from 18 countries who oversee a total of $347bn in ETF assets (approximately 5% of the global ETF market) and more than half having over 40% of their total portfolio invested in ETFs.


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