What ETFs Investors Really Want
ETF investors across the globe seem to share not only an appetite for ETFs that deliver access to “what’s next” across industries, but they want so much more.
The latest global ETF investor survey—an annual look at ETF adoption among nearly 400 advisors, institutions and fund managers—offered insight into what investors are thinking, and quantified demand and product-innovation trends taking place globally. The survey, now in its eighth year, is conducted annually by global ETF service provider Brown Brothers Harriman.
Put simply, the data showed that ETF investors like and want more thematic ETFs; they are diving into active management like never before; and cryptocurrency ETFs—you probably guessed it—rank high among their access requests.
Thematic ETFs Indeed Hot
Thematic ETFs have dominated headlines—especially since the pandemic—because they offer clear, compelling story lines that are easy to understand and implement. Who doesn’t get a “work from home” ETF amid a global pandemic, or an e-commerce fund as the future of retail?
The data showed that they also seem to have massive staying power and growth potential.
A whopping 80% of investors surveyed globally are looking to invest more heavily in thematic ETFs this year. Specifically, investors want funds that tap into things like disruptive tech, or more broadly, in the digitization across industries.
What’s interesting about this trend is that thematic ETFs have, in some ways, reshaped the way many investors think of sector-related opportunities. The ongoing debate over whether themes are the new sectors resonates in the data. Consider that among U.S. investors, it was a practically even split (20% versus 19% of those surveyed) between those who prefer sectors ETFs versus those who prefer thematic ETFs to implement sector investing.
By comparison, in Europe and in Greater China, appetite for sector ETFs still trumps that of thematic ETFs handily for the purpose of accessing sectors, according to the data. U.S. investors seem to be diving into thematic ETF investing more heavily.
But not all themes are created equal. Investor interest definitely centers on technology-linked innovation, as the table below shows. Cannabis, for example, has captured a lot of headlines but currently ranks much lower in priority:
Active Management Hits Its Stride
Another key finding this year is that investors are taking a much closer look at actively managed ETFs, both transparent and nontransparent.
Adoption of these products is expected to rise significantly, as 65% of those globally surveyed said they plan on investing in active ETFs this year. In the U.S. alone, 71% of ETF investors said active funds is on their must-add list this year. Even more impressive is that 50% of U.S. investors said they plan to invest in nontransparent active ETFs in 2021.
This may largely be a direct reflection of ARK Funds’ success in both performance and asset flows in 2020, with its lineup of disruptive ETFs, which ignited investor confidence in the value proposition of (some) active managers. It could also be that the newly launched portfolio opacity feature is opening the door for die-hard active investors to embrace ETF wrappers for the first time. Either way, active ETFs are having their moment.
Cryptocurrency ETFs, Please!
Not surprising in the data is the fact that investors across the globe listed cryptocurrency ETFs as one of their top wish-list products.
Europe already offers some funds in this category; Canada now has two bitcoin ETFs recently launched to resounding success. But in the U.S., regulatory obstacles still prevent a bitcoin ETF—or more broadly, a cryptocurrency ETF—from coming to market. Investor access to these assets have been limited to other vehicles, but there are several bitcoin/crypto ETFs in registration waiting for regulatory approval.
If the data pointing to investor interest translates into actual dollars flying to bitcoin ETFs in the U.S., it stands to reason that any crypto ETF launch here will be welcomed with open wallets.
Cost Still King
Finally, one other key stat showed that some adoption trends stand the test of time.
When it comes to U.S. investors, their No. 1 criteria for selecting an ETF remains the same: cost. Fee pressure and compression is a staple of the U.S. ETF market, as investors place a huge focus on price above all else.
That cost focus isn’t shared at the same level in other markets, as the table below shows, where historical performance leads decision-making:
Source: Brown Brothers Harriman
Highlights
These data points detailed here are just some of the highlights from BBH's eighth annual look at ETF investor trends. For the complete survey, check out www.bbh.com.
Contact Cinthia Murphy at cmurphy@etf.com
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