According to Morningstar research, investors have a strong preference for physically-backed exchange traded funds over the synthetic types. The fourth online survey focused in on investors in the United Kingdom, and their understanding and use of ETFs.
“Despite the efforts made by providers of synthetic replication ETFs to improve the level of transparency and investor protection in their product lineups, respondents remain wary of swap-based ETFs. This is despite the ongoing conversation around counterparty risk recently shifting focus to highlight those risks arising from securities lending within physical replication ETFs,” Ben Johnson, Morningstar’s director of European ETF research, said. [Mutual Fund Investors Smarten Up on ETF Benefits]
Another finding in the survey is that most investors cite the cost factor as “very important” to “important”, when they are selecting a product. The low costs of ETFs continues to resonate, with 89% of current ETF investors and 96% of prospective users citing ETFs’ low costs as a deciding factor. [The ETF Industry: Still Alive and Thriving]
This verifies the cost-war going on between major fund providers such as Vanguard and Charles Schwab, who are slashing fees in an effort to gain market share. This trend has not trickled over into Europe but recent fund launches reflect a price-conscious provider, reports News Desk on ETF Strategy.
Furthermore, investors want to know what they are investing in. Physically-backed ETFs take precedence over swap-based or derivative funds. In turn, providers that offer these products are doing what they can to improve transparency for synthetic ETFs. Around 89% of the survey participants prefer physically-replicated funds over synthetic-replication funds. [ETF Providers Call For More Transparency]
There were 181 investors that replied to the survey in the U.K.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.