European ETF investors are demanding more education along with better transparency around underlying holdings, according to a survey conducted by ETF Stream.
The survey, which interviewed 37 ETF investors, found education was a common response to the question on the areas ETF issuers can improve.
Meanwhile, ETF buyers also feel the issuers’ ranges are being neglected with 35% of respondents highlighting improved transparency as an area where they can improve.
Despite ETFs being praised for their transparency, Gilles Prince, CIO of Edmond de Rothschild, said there should be more education provided for the underlying indices. This would ensure investors know what is in the product.
A significant volume of these investors said that the usability of the issuers’ website could do with improvement.
As Irene Bauer, CIO at Twenty20 Investments, said: “Some ETF providers give you a lot of information on their website, whereas I would like to see the others catch up on that front.”
Other suggestions included improving the structural layout of the companies. For example, Ben Seager-Scott, head of multi-asset funds at Tilney, said there should be better communication and product knowledge across sales forces.
Such that an index tracking product salesman should not have to refer a client to an ETF specialist but rather be able to explain the products available themselves.
Furthermore, Seager-Scott would like to see extra efforts in bringing ETFs and their benefits to the retail market via platforms and IFAs. In fact, one out of ten respondents mentioned the lack of retail adoption as a key area for improvement.
Former CIO of Nutmeg Shaun Port said it was a ‘big shame’ that ETFs are still institutional tools while Copia Capital’s Hoshang Daroga said firms should be building brand awareness within this part of the market.
Multiple investors commented on how they hope there remains a sense of competitiveness among issuers to keep innovation ripe and fees low.
This is in addition to the majority of respondents saying they did not have a preference on which ETF issuer they decide to work with. Just over 50% said they were agnostic towards the issuers of the ETF due to the fact each issuer has better specialities.
Vanguard struggles to replicate US ETF success in Europe
However, some 14% of buyers said that they would prefer to work with larger players due to improved liquidity and cheap plain vanilla products. Notably, BlackRock, State Street Global Advisors and Vanguard were mentioned in this category.
Demand
While most of the respondents are fans of the ETF wrapper and the features it offers, there is still plenty of gaps in the market for more products to become available.
Some 27% of respondents expect more environmental, social and governance (ESG) ETFs to come to the market as portfolios position themselves for the sustainable revolution.
As part of this, there has been a growing demand for fixed income ESG ETFs to enable investors to construct a robust and sustainable portfolio using ETFs as building blocks. Fixed income ETFs, in general, have been growing in demand as 32% of respondents want to see a variety of products come to market.
Flows so far this year suggest that investors are favouring fixed income ETFs over equity as the asset classes attracted €26.9bn and €15.1bn in the first three quarters of 2020, respectively, according to data from Morningstar.
These flows are likely to continue growing as ETF issuers bring more products to the market with a variety of maturity buckets. With rates frequently changing and investors in search of yield, issuers are having to offer a variety of bonds products with maturity dates ranging from 0-1 year to 20+ years.
Furthermore, there are challenges for UK investors when trying to manage their European bond exposure being one of only a few countries in the region that do not consistently trade in euros.
As a result, a significant portion of UK respondents suggested they would like to see a European ex-UK bond ETF that is currency hedged be brought to market. This would suggest UK investors would be more able to manage their gilt ETF exposure without having to take into consideration the UK exposure of their European government bond ETFs.
A handful of respondents that requested growth within fixed income said that they would like to see more of collaboration with fixed income and smart beta strategies. There has been demand for these types of products from before 2020 as a survey from EDHEC Risk Institute found this to be the most popular area for expansion.
The final asset class which saw multiple respondents say that wish to see developments in was alternatives. A category with only €9.4bn in assets under management in Europe, it has been struggling to gain momentum.
JP Morgan Asset Management and UBS Asset Management each had to close a liquid alternative ETF as a result of their products struggling to attract assets.
Nonetheless, BlackRock has two popular real estate ETFs which have surpassed the $1bn milestone with the iShares Developed Markets Property Yield UCITS ETF (IWDP) and the iShares European Property Yield UCITS ETF (IPRP) accumulating £1.5bn and £1.4bn, respectively.
JPMAM and UBS AM are not the only ones that have been forced to close products. ETFs across all asset classes are closing at record numbers year after year in tandem with product launches beginning to slow. Therefore, issuers have been focusing on streamlining their ETF businesses despite growing demand in numerous areas within the market.
