Global survey of institutional investors show allocations to ETFs are broadening amid volatility and uncertainty
Institutional investors worldwide are seeking alpha in exchange-traded funds (ETFs) in greater volumes but are expanding the spread of their allocations.
A survey of more than 300 institutional investors, fund managers, and financial advisors from the United States, Europe, and Greater China reveals that 61% are planning to boost allocations to ETFs in the next 12 months, down from 84% a year ago; 28% are planning a hold-steady.
The Brown Brothers Harriman (BBH) research also found that fixed income ETFs are in demand (46% of respondents expect to increase their allocations) due to the current interest rate environment. Four in ten are likely to allocate more to short-term fixed income ETFs.
The pivot from mutual funds to ETFs is happening fast with 92% of investors saying they have bought an active ETF in the last 12 months with 46% allocating capital from index mutual funds and 42% allocating capital from active mutual funds.
More than 8 in 10 investors plan to increase or maintain their exposures to active ETFs this year.
And with the current market volatility, 69% of global investors plan to maintain or increase allocations to commodity ETFs, while 76% plan to maintain or increase allocations to buffer/market neutral strategies.
Despite the rollercoaster ride it involves, nearly half of investors plan to add cryptocurrency and digital asset-themed ETFs to their portfolios this year. That’s roughly on a par with last year.
Robo-advisors
The survey revealed that use of robo-advisors to access ETF model portfolios has tripled year-over-year with 29% of respondents using them.
More than half of investors (57%) prefer utilizing a proprietary model over ETF issuer models when selecting ETFs.
“The macro uncertainty we continue to face has driven investors across type and geography to adapt their portfolios to add protection and capture opportunity,” said Shawn McNinch, Global Head of ETFs at BBH. “At its core, the data shows that investors continue to embrace ETFs as a vehicle of choice, with emerging categories such as active and fixed income continuing to gain ground. It also demonstrates that the way investors utilize ETFs is evolving, and asset managers and service providers must constantly adapt to meet these changing demands.”
2023 vs. 2013
The BBH survey marks a decade of research into the ETF market, which has grown 16% annually.
The firm’s research shows how investors have changed the way they approach the ETF market:
- Changing lens: Expense ratio, ETF issuer, and tax efficiency – in that order – are the three most important factors for investors when selecting ETFs in 2023. In 2013, the top three, in order, were exposure, ETF brand, and expense ratio.
- All hail spreads: In 2023, 61% of investors say spreads are extremely or very important when selecting an ETF. By comparison, in 2013, only 2% of investors picked trading spreads as the most important factor when selecting an ETF, and 43% said spreads were the least important factor. This indicates the focus on trading and the impact of spreads to the total cost of ownership of an ETF.
- Active has arrived: ETFs are no longer as synonymous with passive investing as they were in 2013. Over the last three years we have seen an impressive 52% annual growth rate bringing the active ETF space to $342bn AUM1.
- Flight to safety: Today, 46% of investors plan to increase fixed income ETF allocations, versus 11% in 2013. Over the last 10 years, the number of fixed income ETFs to come to market has substantially increased, thus, investors now have more choices.
