Research from Source shows how investors are using ETFs

Jun 30th, 2015 | By | Category: ETF and Index News

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A new survey from London-based exchange-traded fund provider Source points to continued demand for ETFs, particularly as a method of gaining broad market exposure, with growth in smart beta strategies also expected to be strong.

Source research shows how investors are using ETFs

Peter Thompson, Source President.

Of the 559 professional investors and advisers interviewed, 71% were currently invested in passive tracker ETFs, with 37% of respondents expecting to increase their allocation in 2015.

Beyond traditional market capitalisation-weighted ETFs the survey also highlights the increased adoption of smart beta strategies across risk-controlled, alternatively-weighted and factor-based ETFs.

Risk-controlled strategies, which offer targeted volatility exposure and the possibility of downside protection, are currently used by 34% of respondents with 13% expecting to increase exposure, compared to only 3% expecting to reduce exposure.

Alternatively-weighted and factor-based ETFs are currently used by 26% and 23% of respondents respectively. Given the attractive fee structure of ETFs, investors are increasingly turning to these strategies to replace active managers as well as to enhance returns and manage risks within their core allocations. Eight percent of respondents expect to increase their allocation to alternatively-weighted strategies and 9% to factor-based strategies.

Currency-hedged strategies are currently used by 32% of respondents, but expectations of further adoption are timid compared to other strategies. While 5% are looking to increase their exposure to such products, 3% are contemplating a reduction. This could point to of a cooling off in demand for currency-hedged ETFs perhaps if investors don’t expect the trend in US dollar strength to continue.

Commenting on the survey, Peter Thompson, President of Source, said: “The ETP market is incredibly creative and is constantly pushing back the boundaries of innovation. We have just announced that together with FTSE Russell and Research Affiliates, we have created the FTSE RAFITM Equity Income Index Series, a new family of indices targeting high dividend-paying stocks which have also been screened to favour sustainable income. It is clear that innovation, coupled with the fact that ETPs are often very liquid and often have very competitive fees, is fuelling growing demand for these products.”

The survey was carried out across investors based in 11 European countries.  Each of those interviewed are responsible for at least £50 million worth of private client investments or £100 million of institutional assets.

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