ETF Innovation Continues to Open Doors for More Dynamic Investing

2021 Global ETF Investor Survey

March 08, 2021
In our eighth annual ETF Survey, we outline the emerging trends in usage, selection, and demand for exchange-traded funds.

2021 marks our eighth annual survey of investors across the globe where we seek to outline emerging trends in usage, selection, and demand for exchange-traded funds (ETFs). This year we captured responses from 382 ETF investors across the U.S., Europe, and Greater China to identify key trends, highlight changing sentiment, and explore areas of innovation in the dynamic ETF marketplace. We compiled our key findings around the changing ETF marketplace, active and thematic ETFs, ESG strategies, and market volatility, but we encourage readers to download the complete results.

Who we surveyed:


The 2021 BBH ETF Investor Survey captures responses from a panel of 382 investors from the U.S., Europe, and Greater China, including financial advisors (44%), institutional investors (30%), and fund managers (26%). Nearly three quarters (74%) of the respondents manage more than $100 million and more than half (56%) have more than 25% of their portfolio invested in ETFs. All surveyed respondents invest in ETFs.

Key Findings

  • ETF allocations continue to rise: Last year’s market volatility did not seem to scare our respondents away from ETFs, as 72% of global ETF investors plan to increase their ETF allocation in the next 12 months, an increase of three percentage points from our 2020 survey.
  • There’s an appetite for active ETFs: 65% of respondents plan to increase their exposure to active ETFs, up from 57% in 2020. More than half of U.S. ETF investors plan on buying a semi-transparent, active ETF in the next six months.
  • Thematic ETFs are going mainstream: 80% of investors will increase their allocation to thematic ETFs this year.
  • Respondents are saying the right things about ESG. In five years, 56% of ETF investors expect to have at least 11% invested in ESG ETFs, but lack of industry standards and varying track records may inhibit adoption.

ETF Marketplace

2020 was a banner year for ETFs. The market now represents an $8 trillion industry and is showing no signs of slowing, growing at an annual rate of 26%1. This global growth is all the more impressive considering that close to a year ago, the market experienced one of the most volatile periods in recent history as the economic impacts of the pandemic took effect. While ETF flows turned negative in some markets, the resiliency of the product structure and supporting capital market infrastructure saw them not only weather the storm, but cement their status as a go-to option for investors to trade during market stress.

  • U.S. represents

    70 %

    of the ETF market with $5.47 trillion in AUM3

  • Europe reached

    $1.28 trillion

    ETF AUM at the end of 20203

  • Greater China now has over

    $270 billion

    in ETF AUM3

Perhaps unsurprising to many, our survey results suggest that many of these themes will persist. ETF flows are expected to remain strong as global investors plan to increase portfolio allocations. Investors and intermediaries, however, may be more discerning this year as 43% of respondents are looking for ETFs with at least $100 million in AUM. Additionally, while we expected trading spreads and volume to rate higher with investors as part of their ETF selection criteria given the volatility in 2020, more standard criteria like expense ratio, track record, and the brand of the issuer are the features investors start with.  

Do you expect your use of ETFs to increase, decrease, or stay the same over the next 12 months?


  U.S. Europe
Greater China
  2021 2020 2021 2020 2021
2020
Increase 76% 72% 62% 60% 76%
72%
Decrease 5% 10% 17% 12% 6%
15%
Stay the same
19% 18% 21% 28% 18%
13%
Total 100% 100% 100% 100% 100%
100%

When selecting ETFs, please select and rank your top three of the following in terms of importance.2


  U.S. Europe
Greater China
  2021 2020 2021 2020 2021
2020
ETF issuer
3
5
2
3
6
8
Index methodology
5
8
8
9
5
4
Expense ratio
1 2 3 1 4 6
Tracking error
8 8 7 7 8 8
Historical performance
2 1 1 2 1 1
Trading spreads
7
7
5
4
3
2
Tax efficiency
4 2 4 6 7 6
Trading volume
6 4 6 7 2 2

What is your “Rule of Thumb” for minimum AUM for a new ETF before you’ll invest?


  Total (YoY) U.S. Europe Greater China
(USD) 2021 2020 2021 2020 2021 2020 2021
2020
Under $25 million
15% 12% 17%
15%
26%
12%
8%
11%
$25 million -$100 million
30% 37% 36%
38%
27%
34%
27%
38%
$100 million -$250 million
43% 32% 35%
22%
31%
34%
58%
38%
More than $250 million
7% 12% 8% 14% 6% 11% 6% 10%
I don't have a 'rule of thumb'
5% 7% 4% 11% 10% 9% 1% 3%
Total
100% 100% 100% 100% 100% 100% 100% 100%

Active ETFs

Actively managed ETFs are not a new phenomenon in the global ETF market. They’ve been in play for over a decade and now account for about 2.9% of ETF market share or $303 billion in asset under management (AUM)3. What’s different now is the introduction of new structures through which active managers can deliver their investment strategies. It stands to reason that the segment will grow: Across geographies, there was a pronounced uptick in surveyed investors’ planned allocation to active ETFs.

In the U.S., the arrival of semi-transparent ETFs has been a boon for the active management space and helped fuel overall industry growth in 2020. Last year saw 31 new ETF issuers launch active ETFs in the U.S., and the number of active ETFs now accounts for approximately 20% of the 2,390+ U.S.-listed ETFs4. This structure has clearly resonated with ETF investors: 51% in the U.S. said they would buy a semi-transparent, active ETF this year. This is an important response and one managers should contemplate. While investor demand appears to be there, the preference for track record and AUM minimums should also be considered as investors (and many of the intermediaries who support them) may give active ETFs time to incubate before making any allocations.

Although semi-transparent ETFs have not been approved by regulators in Europe, the Central Bank of Ireland (CBI) have openly stated that they have recognized the developments in the U.S. and are in discussions with parties within the European ETF eco-system to develop their thinking. This work is at an early stage but progress is expected in 2021. Throughout Asia, regulators are evaluating the opportunity to expand product strategies that are available to ETF issuers including actively managed ETFs.

Australian investors have been an early adopter with active ETFs accounting for 50% of net new flows in 2020, while in Hong Kong, issuers continued to add new active ETFs to their platforms. Similar to Europe and the U.S., transparency continues to be top of mind for active asset managers who are assessing these products. Finally, Defined Outcome (buffered ETFs) is an area to watch. The products surged in popularity in the U.S. in 2020 and caught the attention of managers and investors globally. These type of products will likely be a basis for additional innovation in the ETF market, especially in how active management is deployed in the wrapper.  

Do you expect your exposure to actively-managed ETFs to increase, decrease, or stay the same over the next 12 months?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
Increase 65% 57% 71%
62%
50%
43%
71%
63%
Decrease 9% 13% 8%
9%
15%
18%
5%
12%
Stay the same
26% 30%
21%
29%
35%
39%
24%
25%
Total 100% 100% 100% 100% 100% 100% 100%
100%

In what asset class would you be most likely to look for in an actively-managed ETF?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
Fixed income
18% 18% 16% 21% 16% 10% 21% 20%
Domestic equity
10% 16% 12% 21% 8% 12% 10% 13%
Global equity
17% 22% 16% 17% 21% 26% 16% 24%
Multi asset
15% 18% 13% 16% 12% 12% 18% 24%
Commodities
7% 14% 7% 12%
10% 21% 4% 10%
Alternatives 7% 6% 7% 5% 10% 13% 5% 4%
Currency 11% 6% 16% 8% 14% 6% 5% 5%
Buffered ETFs (e.g. Defined Outcome ETFs)
15%   13%   8%   21%  
Total 100% 100% 100% 100% 100% 100% 100%
100%

Will you buy a semi-transparent, active ETF in the next six months?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
Definitely
51%
  51%          
Possibly
40%
  40%          
No
4%
  4%          
Not sure what a semi-transparent, active ETF is
5%
  5%          
Total 100%   100%          

Thematic ETFs

Interest in thematic ETFs has grown significantly in recent years. Strong performance and widespread media attention of several prominent thematic ETFs helped fuel demand in 2020. We don’t see that interest waning. 80% of global ETF investors said they plan on increasing exposure to thematic ETFs this year. Technology-focused thematic ETFs command the most interest from ETF investors, but there were other areas worth noting, including robotics/AI, healthcare, ESG, and fintech. Often these ETF strategies are seen as ways to tap into long-term changes in various sectors and demographics, and while they are typically very concentrated, investors appear to be using them more widely. An area to watch here will be the continued deployment of thematic strategies in an actively managed ETF, pivoting away from traditional style box and factor oriented strategies to specific themes and emerging industries – another example of the evolution in active management.

Given the considerable gains in the value of digital assets throughout 2020, it is not surprising that globally 15% of investors indicated that fintech/crypto ETFs were their thematic ETF of choice. Advances in the digital asset ecosystem, and increasing investment in these underlying currencies by hedge funds and corporate entities, may see ETFs targeting this market as a leading edge of broader digital asset adoption.

Do you plan on increasing your exposure to thematic ETFs?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
Yes
80%   81%
  69%
  86%
 
No
5%   7%
  9%
  1%
 
Keep the same
15%   12%
  22%
  13%
 
Other (please specify)
0%   0%   0%   0%  
Total 100%   100%   100%   100%
 

What type of thematic ETFs are you most interested in?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
Internet/Technology
33%
27%
35%
30%
30%
25%
30%
26%
Robotics and A.I.
19% 19% 11% 11% 21% 24% 25% 23%
Environment/Sustainability 14% 18% 22% 11% 13% 20% 9% 22%
Healthcare 10% 13% 13% 25% 8% 3% 10% 8%
Digital Assets
15%
12%
12%
10%
18%
16%
16%
12%
Autonomous and Electric Vehicles
7%
7%
5%
6%
7%
8%
10%
8%
Cannabis 2% 4% 2% 7% 3% 4% 0% 1%
Total 100% 100% 100% 100% 100% 100% 100%
100%

In five years, what percentage of your portfolio will be in thematic ETFs?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
0%
0%   1%
  0%
  0%
 
1-5% 9%   5%
  17%
  6%
 
6-10%
30%   26%
  40%
  27%
 
11-20% 34%   35%   24%   40%  
21-50% 23%   25%   15%   26%  
Above 50%
4%   8%   4%   1%  
Total 100%   100%   100%   100%
 

Volatility & Fixed Income ETFs

During the market sell-off that saw the S&P 500 fall 12.5% in the month of March 2020, ETFs surprisingly saw net inflows over the same period with U.S. listed ETFs adding $7.8 billion5. Of even greater significance, research by The Investment Association noted that ETFs acted as a source of stability and price discovery during the month as the underlying bond markets became less liquid6. Survey results confirm as much: 42% of respondents said they buy fixed income ETFs during periods of heightened volatility where the ETF offered transparency and liquidity when compared to the individual bonds.

Above all, fixed income had an outstanding year in terms of ETF flows, outpacing equity ETFs in the U.S. and Europe for most of the year. In the U.S., fixed income ETFs received key backing from the Federal Reserve who used bond ETFs for the first time in early 2020. While the European Central Banks (ECB) did not purchase bond ETFs, many feel that they would follow a similar approach to the Fed should volatility rise again. In Greater China, an increasing number of institutional investors are turning to fixed income ETFs for different strategic or tactical use cases. As we look ahead, investor comfort with fixed income ETFs appears to have solidified, but managers should continue to educate their client base about how these products hold up in periods of stress in terms of wider spreads and more persistent discounts.

How did you use ETFs in your portfolio during periods of heightened market volatility, like March 2020?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
Traded ETFs intraday to take advantage of market opportunities
38%   41%   32%   39%  
Reduced ETF positions
28%   30%   25%   29%  
Bought fixed income ETFs
42%   42%   31%   51%  
Bought low volatility smart beta ETFs
32%   32%   17%   44%  
Bought leveraged/inverse ETFs 30%   33%   23%   33%  
Bought additional shares of your current ETF selection 36%   37%   28%   40%  
Took no action 8%   8%   15%   3%  
Other 0%   1%   0%   0%  

Do you expect your exposure to fixed income ETFs to increase, decrease, or stay the same over the next 12 months?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
Increase
66%   67%   52%   76%  
Decrease
10%   9%   17%   5%  
Stay the same
24%   24%   31%   19%  
Total
100%   100%   100%   100%  

What types of fixed income ETFs do you plan to add to your portfolio?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
U.S. Treasury ETF
40%
  47%
  27%
  41%
 
Mortgage-Backed or Asset Backed Securities (MBS / ABS) ETF
38%
  41%
  34%
  37%
 
Treasury Inflation-Protected Securities (TIPS) ETF
36%
  34%
  30%
  40%
 
Corporate Bond – Investment Grade ETF
32%
  34%
  34%
  29%
 
Emerging Market Bond ETF
34%
  40%
  27%
  33%
 
China Treasury ETF
31%
  21%
  23%
  42%
 
Corporate Bond – “High Yield” ETF
30%
  35%
  25%
  30%
 
Sovereign Debt
28%
  26%
  27%
  31%
 
Short-duration bond ETF 25%   24%   21%   28%  

ESG ETFs

Although ESG is clearly a growing investment theme, thematic ETF statistics do not include funds devoted to strategies that rely on environmental, social, and governance (ESG) criteria for choosing the equities, yet ESG ETFs also attracted a lot of new assets in 2020. In Europe, for example, 36% of the new ETFs launched in 2020 were ESG funds, according to data firm TrackInsight. Globally, a record $89 billion flowed into ESG ETFs in 2020, well above the $28 billion of flows in 20197. Europe commanded more than half of those flows. European ESG ETFs took in €45 billion in 20208, more than double the inflows in 2019. That number stands to grow: 82% of surveyed investors plan to increase their allocation to ESG this year.

While there are headwinds, including the SEC Proxy Voting Proposal and DOL ESG Proposals, the ESG segment is clearly gaining momentum. With the Biden administration signing up to the Paris Agreement, the implementation of initiatives such as the “Green Deal” in Europe, as well as China’s objective of carbon neutrality, ESG is likely to firmly stay in the political spotlight potentially pointing to a very green future for ESG ETFs.

Do you plan to increase your allocation to environmental, social, and corporate governance (ESG) investments (not limited to ESG ETFs) over the next year?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
Yes
82%
74%
80%
69%
67%
73%
92%
79%
No
9%
14%
12%
16%
14%
18%
4%
10%
Not sure
9%
12%
8%
15%
19%
9%
4%
11%
Total
100% 100% 100% 100% 100% 100% 100% 100%

What is preventing you from adding ESG to your portfolio?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
Lack of consistent methodology and framework
13%
  19%
  11%
  9%
 
Lack of client interest 28%   31%   31%   18%  
Concerned about the performance of ESG ETFs
42%
  42%
  41%
  46%
 
ESG ETFs are too expensive
17%
  8%
  17%
  36%
 
Total
100%   100%   100%   100%  

How do you evaluate ESG ETFs?


  Total (YoY)
U.S. Europe
Greater China
  2021 2020 2021 2020 2021 2020 2021
2020
Third party ratings
18%
  19%
  25%
  12%
 
In-house/proprietary ESG ratings criteria
30%
  19%
  31%
  40%
 
Review company statements / reports for underlying holdings
27%
  28%
  23%
  28%
 
Brand recognition of ETF manager
25%
  34%
  21%
  22%
 
Total
100%   100%   100%   100%  

In five years, what percentage of your portfolio will be ESG ETFs?


  U.S. Europe
Greater China
  2021 2020 2021 2020 2021
2020
0%
5%
3%
0%
1%
0%
0%
1-5%
10%
9%
18%
19%
6%
7%
6-10%
21%
29%
44%
35%
33%
31%
11-20% 29% 29% 23% 31% 42% 31%
21-50% 26% 18% 11% 10% 16% 26%
Above 50%
9% 12% 4% 4% 3% 5%
Total 100% 100% 100% 100% 100%
100%
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Active ETFs: Helping Managers Navigate the Various ETF Structures

February 09, 2021
Brown Brothers Harriman and the New York Stock Exchange teamed up to create a general guide on exchange-traded fund (ETF) structures approved by the SEC.

1ETFGI, December 31, 2020

2Please note that we removed ESG factors as a response in the 2021 Survey.

3ETFGI, January 2021

4NYSE Data as of 3/1/2021

5ETFGI, April 2020

6ETFexpress.com, ETFs can provide stability in times of market stress, says IA study, July 12, 2020

7ETFGI, January 22, 2021

8Lyxor, January, 2021

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