EDHEC-Risk European ETF survey finds usage becoming more mainstream
EDHEC-Risk has published the results of its annual European ETF and Smart Beta survey which show growing demand for SRI/Ethical ETFs and significant interest in fixed-income Smart Beta solutions.
The 12th EDHEC European ETF, Smart Beta and Factor Investing Survey, conducted as part of its Amundi research chair on “ETF, Indexing and Smart Beta Investment Strategies” found that ETF usage is becoming increasingly mainstream.
In 2006 45 per cent of respondents used ETFs to invest in equities, compared with 91 per cent in 2019. As for governments and corporate bonds, the figures rose from 13 per cent and 6 per cent in 2006 to 66 per cent and 68 per cent respectively in 2019.
The survey also found that ETF usage is becoming more tactical. “For the first time, the use of ETFs for tactical allocation was higher (53 per cent) than for long-term buy and hold (51 per cent). This more balanced usage suggests that the ETF market is maturing and users are becoming more proactive” EDHEC-Risk says.
Achieving broad market exposure still tops the list, with 73 per cent of respondents using ETFs frequently for this purpose, the survey found. However, sub-segment usage has risen, probably reflecting the increasingly tactical role of ETFs in portfolios.
Cost and quality of replication are the two main drivers for selecting ETF providers. About two-thirds of respondents (66 per cent) used ETFs to invest in Smart Beta in 2019, a considerable increase since 2014 (49 per cent).
Key objectives driving the use of Smart Beta and factor investing strategies include improving performance, which was the main motivation for using them, while managing risk is also considered an important criterion.
Some 68 per cent of respondents feel that smart beta and factor investing bond solutions are especially useful in performance-seeking portfolios, primarily to harvest risk premia.
About three-fifths of respondents believe that the three typical factors of the credit risk market, namely carry/level of the yield curve, credit and slope of the yield curve, are the most relevant in fixed-income markets (63 per cent, 60 per cent and 58 per cent respectively), the survey found.
Looking to the future, 31 per cent of respondents want to see more SRI-based ETFs, while similar proportions are interested in ETFs related to multi-factor and smart beta indices (30 per cent and 28 per cent respectively).
The cumulative percentage of those that already invest or are considering investing in smart beta and factor investing in the near future is still higher in 2019 (79 per cent) than in 2018 (74 per cent), which leaves room for further development of this investment in the near future.
When asked about the smart beta solutions they think require further development by providers, respondents cited fixed income, ESG, and alternative asset classes. They would also like more customised solutions to be developed, EDHEC-Risk says.
Respondents show a significant interest in Fixed-Income Smart Beta solutions and plan to increase their investment in this area. However, they explain that their usage is limited because the current offer does not correspond to their needs in term of risk factor, and due to a lack of research in the area. The development of new products corresponding to these demands may lead to an even wider adoption of Smart Beta solutions.
Commenting on the results of the survey, Fannie Wurtz, Head of Amundi ETF, Indexing & Smart Beta, says: “The results shows once again the significant role of ETFs in investor’s portfolios and rising interest in Fixed Income ETFs. The demand for Smart Beta and Factor solutions keep increasing too, as well as solutions that apply ESG criteria. As the leading European asset manager and a pioneer on socially responsible investing, Amundi continues innovating to answer to investors’ needs”.
Professor Lionel Martellini, Director of EDHEC-Risk Institute, says: “The 2019 edition of the EDHEC European ETF, Smart Beta and Factor Investing Survey conducted as part of the Amundi research chair at EDHEC-Risk Institute on "ETF, Indexing and Smart Beta Investment Strategies" shows a true coming of age in investors’ perception and usage of ETFs, which have become mainstream investment instruments for asset owners and are increasingly used in active market, sector-specific but also factor rotation strategies. There is a substantial appetite for new development in the area of SRI and fixed-income factor investing, where academically grounded product innovation is still needed”.