ETFs gain on mutual funds with USD3 invested in ETFs for every USD1 in mutual funds says BBH investor survey

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Shawn McNinch, BBH

ETF custodian and administrator Brown Brothers Harriman & Co has published the findings of its ninth annual global ETF investor survey, identifying key trends and investor sentiment in the ETF market. 

The firm writes that the report captures responses from nearly 400 institutional investors, fund managers and financial advisers from the United States, Europe, and Greater China. In total, 39 per cent of respondents had more than USD1 billion in assets, up from 30 per cent in 2021.

BBH writes that the findings underscore ETFs as a foundational tool in portfolio construction and paint a bullish outlook by investors for the ETF market overall in the year ahead.

Active strategies are in demand and global interest is gaining pace: Active strategies represented about 10 per cent of net inflows in 2021, the report says. Among global respondents, 78 per cent plan to increase their exposure to active ETFs this year (up from 65 per cent in 2021). Demand for defined outcome ETF product development is growing, with the US and Greater China leading the way.

Thematic ETFs are set to increase their portfolio share: 85 per cent of global ETF investors plan to increase exposure to thematic ETFs. Over the next five years, 38 per cent of respondents plan to allocate 11-20 per cent of their portfolio to thematic ETFs, led by US and Greater China respondents, the report says.

There was a large jump in fixed income ETF interest from US investors year-over-year: Nearly all US investors (86 per cent) plan to increase fixed income ETF allocations over the next 12 months, jumping significantly from 67 per cent in 2021.

ESG tailwinds: Despite citing lack of consistent methodology as a headwind to ESG adoption, 89 per cent of investors plan to add ESG investments to their portfolios, including 56 per cent who will access ESG exposure through thematic ETFs, the report says.

Digital assets and cryptocurrency-themed ETFs on the rise: Reflecting the growing interest in digital assets, 54 per cent of investors plans to add digital asset and cryptocurrency thematic strategies to their portfolio in 2022, the report finds. Technology-focused thematic ETFs, including cloud computing and cybersecurity products, were the most popular option among investors at 64 per cent.

Investors looking for ETF models: Approximately one third of respondents use model portfolios provided by ETF issuers, and another 20 per cent rely on model portfolios from third-party providers.

“2021 was a year of record growth, and 2022 looks set to follow suit as investors demonstrate their confidence in ETFs and increase their allocation across multiple strategies,” says Shawn McNinch, Global Head of ETF Services at BBH. “With allocations rising across active, thematic and ESG strategies globally, it’s evident that the depth of choice in the market continues to provide new portfolio opportunities for investors of all types.”

The survey revealed some significant year-over-year increases: Overall, 84 per cent of global investors plan to increase allocations to ETFs in the next year. 

BBH writes: “When we asked about specific strategies and sectors, we saw that investors plan to increase holdings in thematic, active and fixed income ETFs in particular, suggesting another strong year of growth for the market may be in store.”

ETFs broke USD10 trillion in assets under management (AUM) and collected USD1.2 trillion in flows, through year-end 2021, according to ETFGI. Much of that was driven by US investors, who invested USD3 into ETFs for every USD1 in mutual funds, closing the gap between usage of the two structures.

“While the mutual fund market asset base is still considerably larger than ETFs, the difference narrows each year and likely will continue to do so, especially as ETF flows remain strong, mutual fund to ETF conversions gain momentum and global retail markets grow,” says McNinch.
 

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