Report shows significant planned increases in active, thematic, and fixed-income ETFs, plus rising importance of ESG
There was record growth in exchange-traded funds (ETFs) in 2021 and the world’s institutional investors are planning to boost their holdings in 2022.
Total assets under management (AUM) in the sector surpassed US$10 trillion last year and collected $1.2 trillion in flows according to research firm ETFGI.
A new report from investment bank Brown Brothers Harriman polled nearly 400 institutional investors, fund managers and financial advisors, and revealed largely bullish sentiment for the ETF market in the year ahead; 84% plan to increase allocations to ETFs in the next year.
Although active strategies represented only around 10% of net inflows in 2021, more than three quarters of respondents said they plan to increase their exposure to active ETFs in 2022, with defined outcome ETF product development showing growing demand.
Thematic ETFs are also marked for increased exposure by institutional investors with 85% of respondents planning a boost and four in ten planning to allocate 11-20% of their portfolio to thematic ETFs.
There has already been a large rise in interest from US investors particularly for fixed-income ETFs and 86% of global respondents plan to increase their allocation to these funds in the next 12 months. That’s a significant rise from the 67% who said this in 2021.
Model portfolios supplied by ETF providers are used by around one third of respondents with 20% using model portfolios from third parties.
ESG adoption
Although the lack of reporting standardization was cited as a barrier to ESG adoption by respondents, almost 9 in 10 said they plan to add ESG investments to their portfolios, with 56% intending to do so via thematic ETFs.
“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,” said 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.”
Crypto ETFs
Canada has led the way in cryptocurrency ETFs and the world’s largest investors are keen to jump into the digital space.
More than half of respondents plan to add digital asset and cryptocurrency thematic strategies to their portfolio in 2022. There is strong demand for cloud computing, cybersecurity, and other tech-focused thematic funds.
Across the ETF market, rising demand is closing the gap with mutual funds.
“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,” noted McNinch.
