European investors have highlighted their desire for more education around ETF investment, according to the results of the third annual European ETF Survey conducted by Brown Brothers Harriman (BBH).

Andrew Craswell, senior vice president, BBH ETF Services.

Although the ETF custodian and administrator found that 98% of 283 European financial advisors, fund managers, and institutional investors surveyed plan to increase or maintain their ETF investment level in 2018, the results showed a need for more education is holding them back.

Roughly a quarter (24%) cited not fully understanding ETFs as one of the reasons they haven’t increased exposure over the past year, with a further quarter (26%) not knowing how to pick the best ETF. The trend was particularly acute in relation to the allocation of smart beta ETFs: 59% of respondents did not purchase a smart beta ETF last year. When asked what is preventing them from doing so, 32% cited lack of education.

Andrew Craswell, senior vice president, BBH ETF Services, said, “Those asset managers who are able and willing to provide more in-depth ETF education to investors have a growing opportunity to add assets from existing customers, and cultivate new ones.[pullquote]”Those asset managers who are able and willing to provide more in-depth ETF education to investors have a growing opportunity to add assets from existing customers, and cultivate new ones.”
– Andrew Craswell, senior vice president, BBH ETF Services[/pullquote]

“This is particularly important as the ETF market becomes more crowded and managers look to stand out from the crowd. As investors continue to move towards lower cost investment strategies, so too are they calling for increased guidance and education, particularly around new ETF products and the associated strategies, which are becoming increasingly complex. European asset managers should grasp this opportunity.”

John Swolfs, CEO of research firm Inside ETFs, which co-authored the study, added “I would call on the ETF industry to continue to push education over products. We know the desire to use more ETFs is there but a lack of knowledge has shown to be a real deterrent to the growth of ETFs and the innovative solutions they provide investors.”

The findings also indicate an appetite from European investors for new products, and therefore an opportunity for the European ETF market to continue growing. Two-fifths (42%) of respondents would be willing to invest in an ETF with a track record of less than one year. In Europe, one of the least important factors when selecting an ETF is historical performance, compared to the US, where this is one of the most important factors.

For the third year in a row, expense ratio was cited as the most important factor when selecting ETFs, mirroring the response from those surveyed in the US.

With 75% of respondents holding equity ETFs, this is still the most popular exposure. But investors are starting to buy more fixed income (held by 46% of those surveyed) and alternatives (27%) products.

Environmental, social, and corporate governance factors are increasingly on investors’ radars with three-quarters (76%) of European ETF investors citing ESG as somewhat or very important when making an investment decision. This trend was in contrast to their US equivalents where 51% of investors said the same in a survey conducted by BBH late last year.