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Indices & Benchmarks - April 09, 2015

The EDHEC European ETF Survey 2014

EDHEC-Risk Institute conducted its 8th survey of European investment professionals about the usage and perceptions of ETFs at the end of 2014, as part of the Amundi ETF & Indexing research chair at EDHEC-Risk Institute on “ETF and Passive Investment Strategies.” The aim of the study is to analyse the usage of exchange-traded funds (ETFs) in investment management and to give a detailed account of the current perceptions and practices of European investors in ETFs.

The Background section of our document analyses how different types of ETFs are designed, which advantages they offer, and which risks they are exposed to. The second part of the study focuses on the results of a survey of 222 European ETF users. Responses provide interesting insights into the appreciation of ETFs in general, with the confirmation of a long term trend established in our past surveys, which shows satisfaction with products, which is stable at high levels, and increasing appetite to rely on ETFs for ever more aspects of portfolio management. Moreover, we observe a recent increase in interest in ETFs tracking smart beta indices. When it comes to smart beta ETFs, investment professionals however also have strong quality requirements for the underlying indices, most notably in terms of transparency.

There are a number of studies on the ETF industry in Europe. A key advantage of employing a survey methodology is that we obtain direct information from market participants concerning not only which instruments they currently use, but also how these instruments fit into their overall investment process, and how they are evaluated. Moreover, in addition to current usage, we are able to harness information concerning future plans of investment professionals, thus providing an outlook of likely future industry developments.

Among the key results of the 2014 survey:

  • Satisfaction has remained at high levels especially for traditional asset classes (satisfaction rate higher or equal to 90%). There have been increases in satisfaction for corporate bond, government bond and equity ETFs but satisfaction rates for ETFs based on the most liquid ETF asset classes are far more consistent compared to those based on illiquid asset classes.
  • ETF investors plan to further increase their use of ETFs and data shows growing appetite to rely on ETFs for ever more aspects of portfolio management. ETFs which until now frequently represented portfolio reallocation tools or the realisation of tactical bets are becoming candidates for core investment strategies.
  • Among the biggest priorities seen by investors for future product development in the ETF space, four concern indices relating to smart beta approaches, namely smart beta equity (37%), equity factor (31%), equity style (29%), and smart beta bond (25%).
  • 25% of respondents already use products tracking “smart beta” indices and more than an additional two-fifths of respondents (40%) are considering investing in such products in the near future.
  • More than 80% of respondents think that smart beta indices allow factor risk premia, such as value and small cap, to be captured. This capturing of factor premia is a prime motivation for investment in smart beta ETFs for a vast majority of respondents.
  • ETFs, which are increasingly considered to be a serious alternative to Futures, are perceived as superior to them with regard to minimum subscription, operational constraints, and the tax regime.

The research from which this study is drawn was produced as part of the Amundi ETF & Indexing research chair at EDHEC-Risk Institute on “ETF and Passive Investment Strategies.”