Thematic ETFs set for the mainstream, finds BBH

Mar 8th, 2021 | By | Category: ETF and Index News

Thematic ETFs are poised for growth, according to the eighth annual global ETF investor survey conducted by Brown Brothers Harriman.

Brown Brothers Harriman

Brown Brothers Harriman has released the results of its eighth annual global ETF investor survey.

The custodian and fund administrator interviewed nearly 400 institutional investors, financial advisers, and fund managers from the United States, Europe, and Greater China to identify key trends and areas of innovation in the ETF marketplace.

The survey found that 80% of respondents plan to increase their exposure to thematic ETFs in 2021. Demand for thematic strategies is highest amongst investors from Greater China with 84% intent on scaling up their thematic ETF allocation, compared to 81% for US investors and 69% for European investors.

The research also shows that thematic ETFs have the potential to move beyond satellite holdings in investors’ portfolios with a quarter (23%) of respondents planning to dedicate 20%-50% of portfolio assets to these strategies.

Internet and technology themes continue to generate interest with a third (33%) of investors most attracted to these strategies. The next most popular investment themes are robotics & AI (cited by 19% of respondents), environment & sustainability (14%), and healthcare (10%).

When asked about their appetite for socially responsible investments, 82% of respondents indicated that they plan to increase their exposure to ESG strategies (not limited to ESG ETFs) over the next year. Greater China investors appear most drawn to sustainability-focused investment approaches with 92% of investors surveyed there planning to grow their ESG allocation.

Within five years, over half (56%) of ETF investors expect to have at least 11% of portfolio assets invested in ESG ETFs. However, performance concerns (cited by 42% of respondents), lack of client interest (28%), fees (17%), and inconsistent industry standards (13%) are viewed as barriers to adoption.

While passively managed strategies currently dominate the ETF industry globally, the survey shows that there is a growing opportunity for active ETFs to take market share. Two-thirds (65%) of respondents plan to increase their exposure to active ETFs this year, up from 57% in 2020.

Last year marked the dawn of semi-transparent active ETFs, and more than half (51%) of US investors “definitely” plan to buy one of these products in the next six months with a further 40% indicating that they may possibly be interested.

Fixed income (cited by 18% of respondents), global equity (17%), multi-asset (15%), and defined outcome (15%) are the areas where investors are most likely to adopt an actively managed ETF.

On smart beta, the survey found that three-quarters (75%) of investors currently allocate 6%-20% of their portfolio to alternatively weighted ETFs. This is relatively consistent with last year. The main reasons for adopting a smart beta approach include alpha potential (cited by 30% of respondents), income generation (26%), risk mitigation (24%), and volatility reduction (19%).

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