Investors have called for new products and more innovation in sustainability and smart beta & factor ETFs in the eleventh edition of EDHEC’s European ETF and Smart Beta & Factor Investing Survey.
Fannie Wurtz, Managing Director at Amundi ETF, Indexing & Smart Beta.
The survey, conducted as part of the Amundi research chair at EDHEC-Risk Institute, looked at the investing habits of 163 European professional and institutional ETF and smart beta investors.
According to the results, more than a third (34%) of respondents indicated that they would like to see new developments in ETFs linked to ethical or socially responsible investing (SRI) (also known as Environmental, Social and Governance (ESG)) strategies.
Emerging market equity and bond ETFs were also identified for further development with 32% and 31% of respondents, respectively, asking for the product segments to be built-out.
Other categories which garnered investors’ interest for product innovation included single-factor smart beta ETFs (cited by 27% of respondents) and multi-factor ETFs (25%).
About two-thirds (67%) of respondents used ETFs to invest in smart beta in 2018. This represents a considerable increase on 2014 when just under half (49%) accessed smart beta via ETFs. However, for the first time since the survey began, there was no increase in smart beta adoption compared to the previous year – the adoption rate for smart beta ETFs in 2017 was also 67%.
The amount of assets dedicated to smart beta ETF strategies remains relatively low with more than 80% of respondents saying they invested less than one-fifth of their total investments in smart beta and factor-based strategies.
A possible avenue to simulate new growth in smart beta adoption may lie within fixed income. Almost a quarter (23%) of respondents showed a significant interest for smart beta solutions in this space although many noted they do not consider there to be enough research in the area to invest yet.
Fannie Wurtz, Managing Director at Amundi ETF, Indexing & Smart Beta, said, “ETFs are now broadly used and recognised as a genuine asset allocation tool, in all asset classes, as shown in this new edition of the EDHEC-Risk Institute Survey. The adoption in the smart beta and factor field implies new challenges for asset managers, to design the right solutions that meet allocation needs, notably in the fixed income factor investing field.”
Professor Lionel Martellini, Director of EDHEC-Risk Institute, added, “ETFs are increasingly regarded by institutional asset owners as key investment vehicles in the implementation of strategic asset and factor allocation decisions. The new frontier now is the development of meaningful smart factor investment solutions in the fixed income space. More academic research is needed in this area, which has become one of the main areas of focus for EDHEC-Risk Institute”.
Outside of the smart beta space, ETF adoption remains at high levels. Since 2006, the percentage of respondents using ETFs to gain equity exposure has increased from 45% to 92% in 2018. In the fixed income space, 13% used government bond ETFs in 2006, climbing to 62% in 2018, while the percentage of investors using corporate bond ETFs rose from 6% to 66% over the same period.
Satisfaction in the investment vehicle also remains high, especially for traditional asset classes. Equity and government bond ETFs, for example, now enjoy satisfaction rates of 97% and 92% respectively. And half (50%) of investors plan to increase their use of ETFs in the future, despite the already advanced maturity of this market and high current adoption rates.