63 Percent Of Investors Plan To Increase ETF Allocation

The majority of investors and independent financial advisers (IFAs) plan to increase their use of exchange traded funds (ETFs) according to new research carried out by ETF.com, signalling positive developments to come within the land of passive funds and low-cost solutions for investors.

The 132 survey respondents were overwhelmingly made up of independent financial planners, as well as a smaller percentage – 17.2 percent – of mutual fund managers. It revealed that a whopping 63 percent plan to increase their use of ETFs, while just 2 percent plan to decrease, and 35 percent will maintain their current allocations.

The survey, sponsored by Brown Brothers Harriman and Deutsche Bank, was conducted between 19 May and 22 June. In part 1 of our survey results, we outline three more main findings. Look out for part II tomorrow.

1) Investors Prefer To Mix And Match

A pick n' mix approach to investment vehicles is popular. Over half – 51 percent – use ETFs and mutual funds to complement one another in their portfolios, with 27 percent preferring ETFs as a vehicle over mutual funds.

Furthermore, ETFs more often than not do not make up the so-called “core” part of an IFA’s portfolio. Typically, advisers will use up to around 10 percent of their portfolios in ETFs, the research found. In fact, only a tiny proportion – 4 percent – use ETF-only portfolios.

2) Equity Is Still Mainstream

ETFs were first developed to track mainstream markets like the FTSE 100 or the S&P 500, and this use is still reflected today. A total of 84 percent use equity ETFs, whereas 56 percent of respondents use ETFs within fixed income.

A more surprising revelation was one third of respondents invest in smart beta, aka non-market cap weighted strategies. More popular uses of smart beta tends to be dividend-focused or low volatility.

On an even more granular level, almost 18 percent use active ETFs, which are a relatively recent development in Europe. They do not passively track an index; rather they follow an actively managed strategy within an ETF wrapper that can be traded on exchange.

3) IFAs Don’t Know How To Choose The Best ETF

Selecting the best ETF that tracks the S&P 500 is still a daunting task for many advisers: there are plenty to choose from. This category scored the highest when respondents were asked to rank what features put them off from increasing their use of ETFs. Trading costs, platform issues, education and not having a need for intraday liquidity were also top on this list.

As to where IFAs can find this information, index and ETF issuer websites, trade publications and websites, along with peers and industry events ranked highest on their go-to list.