Over the years, scores of industry studies and surveys noted costs are among the most important factors for advisors and investors using exchange traded funds. Perhaps not surprisingly, ETFs’ past performance is becoming a higher priority for many ETF users.
Brown Brothers Harriman’s (BBH) sixth annual global ETF survey indicates ETF users now rank an ETF’s historical track record on par with expense ratio when it comes to evaluating and selecting ETFs.
“The survey, which measured the expectations and preferences of 300 institutional investors, financial advisers, and fund managers from around the world, also found that investors are placing greater importance on ETF issuer than they have in years past,” according to BBH. “ This year, BBH combined what was previously a regional breakdown into a single global survey of ETF investors in the United States, Europe, and Greater China.”
The survey also confirms that ETF users are expected to boost ETF exposure in the year ahead. About 61% of the survey’s respondents plan to do just that while another 26% expect to maintain current ETF allocations, according to BBH. Investors are also showing a willingness to embrace new ETFs.
“Forty percent of respondents are comfortable buying a new ETF with AUM under $25 million, suggesting an openness to newer products,” according to BBH.
Savoring Smart Beta
Survey data revealed some encouraging trends for smart beta ETFs.
Smart beta, or factor-based, exchange-traded funds that follow customized indexing methodologies have quickly grown in popularity across a range of investment applications, and no two factor-based investments are alike. Consequently, it’s important for prospective investors to familiarize themselves with the different approaches.
“Nearly 30% of respondents said they purchased a smart-beta ETF to replace an actively-managed mutual fun,” according to the BBH survey.
As more look to smart beta strategies, investors should understand that all these fancy appellations basically cover rules-based indexing methodologies that implement factor-based screens, such as value, quality, size, momentum and volatility, among others. Investors can also combine these individual factors into a multi-factor strategy in an attempt to further diversify risk.
“Seventy percent of smart beta ETF users are searching for risk mitigation or volatility control,” notes BBH.
In terms of where ETF users would like to see more ETFs, respondents in the U.S., Europe and greater China all would like to see more fixed income ETFs, according to the BBH survey.
For more on smart beta ETFs, please visit our smart beta channel.