The EDHEC Risk and Asset Management Centre recently released the results of its EDHEC European ETF Survey for 2009. The survey, which includes 360 institutional investors and private wealth managers, indicates high satisfaction with ETF investing and points to continued growth in the industry. Among the findings:
- ETF use on the rise: 90% of respondents reported using equity ETFs, while 80% reported using ETFs in government bond investments. These figures are up from 45% and 40%, respectively, last year.
- ETFs used primarily for equity investing: ETFs make up nearly one-third of the average respondent’s equity investments (22% for commodity ETFs). Among those investors that are using equity ETFs, 94% expressed satisfaction with their choice of investment.
- ETFs investors seek broad market exposure: ETFs tracking broad market indices (e.g. FTSE UK Index, BBC Global 30 Index, etc.) registered as significantly more popular than those tracking a specific sub-sectors (e.g., oil and gas, health care, etc.)
- ETF investors are buy-and-hold investors: Long-term buy-and-hold investment is a more frequently employed strategy than short-term tactical investment. Of course, we must consider that the respondents to the survey are institutional investors and private wealth managers. Had the survey contacted traders and hedge fund managers, the results may have been dramatically different.
- Alternative asset ETFs struggle: Despite solid reviews for traditional ETFs, investor satisfaction with hedge fund and real estate ETFs declined. The percentage of total hedge fund investments attributable to ETFs declined from 7% to 5%.
- Complex ETFs still not widely accepted: Less than 15% of respondents use complex features of ETFs such as securities lending, trading options on ETFs, and short selling. Inverse ETFs are slightly more popular, with 30% of respondents using them. The lack of use does not stem from unawareness – fewer than 10% of respondents indicated they were unaware of these advanced features of ETFs.
- ETFs are the preferred indexing instrument: Survey respondents ranked ETFs, futures, swaps, and index funds on several criteria, including liquidity, transparency, and cost. ETFs and futures ranked highest in the survey, although implementation concerns give ETFs an advantage over futures.
- Emerging markets ETFs head investor wish lists: When asked to identify the ETF products they would most like to see developed, investors named emerging markets (47% of respondents), commodities (35%), currencies (30%), and hedge funds (28%).
The results of the survey are hardly surprising. The ETF industry continues to expand and eat away at the massive market share of traditional actively-managed mutual funds. Given the increasing acceptance of these investment vehicles and high levels of investor satisfaction, it seems that ETFs are poised to continue their torrid growth patterns.
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