A Decade of ETF Evolution Presents Opportunity for Investors in Face of Market Shifts

[This ETF Industry Perspective is sponsored by BBH.]

This year marks 10 years of BBH administering our Global ETF Investor Survey. Each year we capture the opinions of more than 300 ETF-focused investors around the world about how they are selecting and using ETFs in their portfolios.

As the survey enters another decade, it’s evident the last 10 years of ETF product innovation and market maturity have presented global investors with a versatile and expansive toolkit to help meet their objectives, especially in the face of recent volatility and market shifts.

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.

Below are a number of key insights from our 2023 survey and commentary for how investors are leveraging ETFs as a core investment strategy.

• Active ETFs gaining ground: Historically, many viewed ETFs as synonymous with passive investing; however, this is changing, as traditional active investors enter the ETF market for the first time. In fact, 92% of respondents in our 2023 survey 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. 82% of investors plan to increase or maintain their exposures to active ETFs this year.
• Investors are leaning into the Fed’s pivot: Appetite for fixed income has grown in the current interest rate environment, with 46% of respondents expecting to increase their allocation to fixed income ETFs, and 40% expecting to allocate more to short duration fixed income ETFs.
• Robo use has tripled: Use of robo advisors to access ETF model portfolios almost tripled year over year, from 10% to 29%.
• Investors are switching from mutual funds to active ETFs at pace: 92% of investors 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. 82% of investors plan to increase or maintain their exposures to active ETFs this year.
• Crypto, digital asset interest remains in wake of crypto crash: Despite a tumultuous market and rapid decline in value, nearly half of investors still plan to add cryptocurrency and digital asset-themed ETFs to their portfolios this year, at a level roughly in line with 2022.
• Volatility sparks demand for noncorrelated assets: To manage risk and reduce the impact of 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.
• Use of proprietary models grows: More than half of investors (57%) prefer using a proprietary model over ETF issuer models when selecting ETFs.

Additionally, for the first time since the pandemic, investors shared how they prefer engaging with sponsors. 62% of investors prefer to engage digitally with sponsors, and 53% prefer having digital content and insights pushed to them. Enhancing digital engagement strategies will be key for industry participants going forward.

In 2013, when we launched our ETF investor survey, one of the more significant hurdles for investors was ETF education. Since then, the ETF product toolkit has expanded, so what was once basic education around ETFs has evolved to covering more complex topics such as trading and use of more sophisticated ETFs. At the same time, we see a “flight to safety” taking place. 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. 

Looking ahead, we believe the ETF opportunity set will continue to expand, both in terms of new products entering the market and how investors use ETFs to meet evolving demands and performance objectives.

We invite you to download the full survey report on www.BBH.com/etfsurvey and welcome your insights and thoughts on the ETF market now and in the future.

The views and opinions expressed are for informational purposes only and do not constitute investment advice and are not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Views and opinions are current as of the date of the publication and may be subject to change.