EDHEC-Risk ETF survey focuses on ESG

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The EDHEC-Risk 2020 European ETF survey has revealed strong motivations for integrating ESG, whether in ETFs, or in smart beta and factor investing strategies.

The EDHEC-Risk Institute has announced the results of the 13th EDHEC European ETF, Smart Beta and Factor Investing Survey, a comprehensive survey of 191 European ETF and smart beta investors, conducted as part of its Amundi research chair on “ETF, Indexing and Smart Beta Investment Strategies”.

This survey, conducted since 2006, aims to provide insights into European investors’ perceptions, practices and future plans in the domain of ETFs and Smart Beta. The 2020 edition presents a new focus on SRI/ESG investing.

The survey found that in 2020, 49 per cent of respondents are investing in SRI/ESG, a significant increase compared to 17 per cent in 2011. Among them, 55 per cent have used ETFs to invest in SRI/ESG in 2020 (33 per cent in 2019), with a satisfaction rate of 87 per cent (68 per cent in 2019).

Achieving broad market exposure still tops the list of reasons for using ETFs, with 77 per cent of respondents using them frequently for this purpose. 

Cost and quality of replication are the two main drivers for selecting ETF providers (91 per cent and 86 per cent of respondents, respectively). About two-thirds of respondents (65 per cent) have used ETFs to invest in smart beta in 2020, and 47 per cent of smart beta and factor investing has been done through ETFs in 2020.

Some 54 per cent of investors still plan to increase their use of ETFs in the future despite the already high maturity of this market and high current adoption rates, the survey found and 50 per cent of respondents would like to see further developments in SRI/ESG-based ETFs and/or low-carbon ETFs, compared to 38 per cent in 2019. 

Allowing for a positive impact on society (65 per cent) as well as reducing long-term risk (58 per cent) are the two main reasons why respondents incorporate ESG into their investment decisions. However, the majority (63 per cent) do not want this to be done at the expense of weaker performance.

More respondents (45 per cent) favour a best-in-class (positive screening) approach to SRI/ESG implementation over the thematic approach (30 per cent) and the negative screening approach (25 per cent).

The majority of respondents (57 per cent) identify the E (Environmental) as the most important dimension of ESG. The G (Governance) comes second (36 per cent) and the S (Social) ranks last with only 7 per cent.

45 per cent of respondents consider that the best approach to reducing the carbon footprint of a portfolio is positive screening.

Improving performance and managing risk are the two main motivations for using smart beta and factor investing strategies. Despite this strong level of motivation, 70 per cent of respondents invest less than 20 per cent of their total investments in these strategies, the survey found.

In terms of the actual product wrapper, respondents favour passive funds that replicate smart beta and factor investing indices (57 per cent).

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 rewarded factors (63 per cent, 60 per cent and 59 per cent respectively).

When asked about the smart beta solutions they think require further development by providers, respondents cited ESG, fixed income and alternative asset classes. They would also like to see more customised solutions developed.

The development of new products corresponding to these demands may lead to even higher take-up of smart beta solutions. 48 per cent of respondents plan an increase of more than 10 per cent in terms of assets in their use of smart beta and factor investing products in the near future. 

Commenting on the results of the survey, Fannie Wurtz, Head ETF, Indexing & Smart Beta at Amundi, said: “As a pioneer in sustainable investing, Amundi is delighted to see growing interest from investors in ESG solutions. With respondents reporting a range of objectives for their ESG allocations, from a positive impact on society (65 per cent), to reducing long-term risk (58 per cent) and improving performance (25 per cent) we recognise that there is no one-size-fits-all in sustainable investing. With our focus firmly on our clients we have developed a range of responsible ETFs designed to meet the varied objectives of investors.” 

Professor Lionel Martellini, Director of EDHEC-Risk Institute, said: “The 2020 edition of the EDHEC European ETF, Smart Beta and Factor Investing Survey conducted as part of the Amundi research chair at EDHEC-Risk shows a significant increase in the use of ETFs for ESG investing. Overall, 39 per cent of total assets under management in ESG takes the form of ETF investments for our survey respondents in 2020, with a satisfaction rate of 87 per cent. This finding confirms that ESG investing has become a key force in the industry, and that ESG exposure can be achieved not only via active managers, but also via passive investment vehicles.”

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