ETF Investors Offer Their Feedback

December 07, 2016

Our fourth-annual ETF investor survey comes at an interesting time for the ETF industry. This year has seen a healthy number of launches and a record number of ETF closures, while total assets continue to grow. We have again polled our sophisticated readership to learn their opinions on the leading issues faced by ETF investors today.

And once again we have partnered with Brown Brothers Harriman—a leading provider of asset-servicing for the global ETF market, with $340 billion in ETF assets under custody as of June 30, 2016—to update the survey to reflect the most relevant core topics and emerging new concerns, arriving at a comprehensive questionnaire of more than 35 questions.

We’ve gathered the results, and the following is a summary of our findings.

When it comes to selecting an ETF, the exact exposure of the underlying index was the most important factor to consider, by a wide margin, selected as the first choice by 38% of respondents. The closest runner-up was expense ratio, at 25%. Meanwhile, the factors deemed least important by respondents were trading spreads and tracking error, selected by 20% and 19% of those polled, respectively. Historical performance and ETF issuer both tied for third place among the least important criteria, at 18%.

Exposure was also the most important factor when considering a new ETF launched within the last year, claiming 45% of the No. 1 rankings. ETF issuer was the second-most-important factor, selected by 23% of respondents as their most important criteria for new ETFs. Interestingly, even more participants—34%—ranked it as their least important criteria. The participants appear to be very split on the question of ETF issuer, at 34%

Only 8% and 10% of respondents selected trading spreads and average daily trading volume, respectively, as their No. 1 criteria for new ETFs. Further, 25% and 22% of respondents ranked trading spreads and average daily trading volume as their least important selection criteria, respectively, falling in behind ETF issuer.


When it comes to trading history, liquidity and assets under management (AUM), it seems investors have fairly strong opinions with regard to what they want to see from a new ETF. In terms of how soon they’ll buy a new ETF, 37% of investors wanted to see from four months to a year of trading history, while 20% wanted to see two to three years.

Some 45% wanted a new fund to trade at least 10,000 shares per day before they’d invest in it, and another 31% wanted to see at least 100,000 shares per day. A small percentage, 6%, wanted to see 1 million shares traded per day.

Keep in mind that less than 150 ETFs in the entire universe of more than 1,900 have average daily volume above 1 million shares. In terms of AUM, there seems to be a split in the middle range. Only 13% require that a company have at least $10 million in AUM. However, 37% want to see at least $50 million in a fund before investing in it, while 43% want to see at least $100 million. Just 2% want the funds they invest in to have at least $1 billion in AUM, a screen that would limit the total universe of investable ETFs to roughly 175 funds.

Securities lending is another issue that investors take into consideration. Some 64% of investors were just fine with ETFs that engaged in securities lending, no doubt because it can contribute to a fund’s returns. Another 36% of participants said they would not invest in an ETF that engages in securities listing, and the most popular reasons for that aversion were counterparty risk and collateral reinvestment risk.

Finally, index brand is something that roughly one-fifth of investors consider to be unimportant. Another 14% consider it to be more important than the fund’s issuer, but the most sizable portion of respondents—37%—considered it to be less important than the issuer’s brand, but still important. Another 29% thought it was just as important as the issuer’s brand.

Actively Managed ETFs
Nearly 40 actively managed ETFs have launched so far this year after a lull in 2015. And 31% of respondents said performance history was the most important criteria when selecting an active ETF, while 17% picked the fund’s degree of transparency. Overall, 15% deemed the reputation of the portfolio manager the most important factor, and another 15% said that expense ratio was their most important factor when shopping for an active ETF.

Some 42% said that fixed income was the asset class where they were most likely to seek out an active ETF. That’s more than twice the 20% who said they’d use an active ETF for emerging market equities. Only 7% and 6% said they’d look to use an active ETF for U.S. equities and international developed-market equities, respectively.


Strategies & Approaches
We asked several questions touching on some of the biggest current concerns for investors, including the search for income, currency hedging and smart-beta strategies.

Bond liquidity has been tight for some time, and a good 56% of investors view it as an important concern in bond ETFs, with 25% saying it is only “somewhat important.” Interestingly, 8% said it wasn’t a concern at all, disagreeing strongly with the 12% who said it was the most important concern.

Currency-hedged ETFs seem to be struggling a bit, with only 37% of respondents having purchased such a fund in the last 12 months, compared with 46% in last year’s study. That makes sense given that 2015 saw some 40 currency-hedged ETFs roll out, while the numbers were significantly lower in 2016, in addition to a weaker dollar. Another 31% said they were likely or very likely to purchase a currency-hedged ETF in the coming year, down from 36% last year.

Further, nearly half of respondents (46%) said their international equity investments were entirely unhedged. Another growing category in ETFs is smart-beta funds. They’ve been a strong ongoing trend for the past several years, and 2016 has maintained the momentum, with 105 new ETFs—or more than half of this year’s launches—falling into the smart-beta bucket.

Almost identical to last year, 59% of respondents said they had bought a smart-beta ETF in the last year, and 54% said that less than 5% of their portfolio was devoted to smart-beta products.


Again, similar to last year, 58% of respondents said they’d maintain their current level of exposure to smart-beta strategies, while 39% said they’d increase their exposure. Just 3% anticipated decreasing their exposure.

Nearly a quarter of respondents (23%) said they bought a smart-beta ETF to replace a plain-vanilla index fund. Environmental, social and governance (ESG) criteria are also gaining in importance. This year, we’ve seen the launch of roughly a dozen ETFs focused on ESG strategies and at least as many filings. The concept is much more mainstream in Europe, but 22% of respondents said they expected to increase their exposure to such strategies in the next year, and only 1% said they were likely to decrease their exposure.

More than three-quarters said their exposure would likely stay the same.

Still, 63% said ESG factors were not important in relation to their investment decisions, while 27% said such factors were somewhat important. Only 3% said they were very important.

Industry Issues
When allowed multiple choices with regard to which ETF brands garner the most respect, 87% of respondents said that iShares had one of the strongest brand reputations, while another 65% said the same applied to Vanguard, followed by State Street Global Advisors at 56%.

Those rankings are, not surprisingly, paralleled by the latest league tables measuring AUM. iShares has some $938 billion under management, while Vanguard has $578 billion in its ETFs and State Street’s SPDRs have some $451 billion in AUM.

When given the opportunity to select multiple areas on the type of support they liked to receive, 67% of respondents said product information, followed by 51% indicating they’d like educational pieces on specific parts of the market. Returns data and related information and broad-market commentary tied in third place, each selected by 46% and 47%, respectively, of respondents. More than three-quarters of the respondents said they managed all their assets themselves, while 17% said they used an ETF strategist for some of their clients’ portfolios.


Only 6% used strategists for all of their clients’ portfolios.

When asked about their most important criteria for selecting a strategist, 38% said the individual manager was most important, while 32% used track record. Brand and/or company affiliation received 18% of the “most important” votes.

Robo advisors are similar to strategists and offer basic solutions to investors looking to outsource the management of assets. They’re a cheap way to get professionally managed exposure, but they’re still taking off. A full 82% of respondents said they had no intention of using a robo advisor in the next 12 months; only 18% said they expected to use such a service.

But of those respondents planning to use robos, 59% said it would be for access to asset allocation methods, and another 41% cited “technology.”

Only 9% of respondents said they did not manage investments, while 15% said their portfolios consisted of 91-100% ETFs. Another 17% said 10% or less of their portfolios were invested in ETFs, suggesting that the runway for ETFs is still very much wide open.

If you’re interested in learning more about the survey, send us and Brown Brothers Harriman a note at [email protected] with the words “ETF Report Survey” in the subject line, or visit


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