ETF allocations set to almost double over six years, JP Morgan AM says

George Geddes

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In 2016, 22% of portfolios globally were allocated to ETFs. This figure is expected to nearly double to 39% by 2022, according to the latest


by JP Morgan Asset Management (JPMAM).

JPMAM’s Global ETF Study 2019 questioned professional investors’ views on ETFs and their future allocations.

The average portfolio allocation to ETFs today is 27%, five percentage points higher than what it was three years ago. This adoption is expected to accelerate in the next three years as exposures are expected to grow by another 12 percentage points.

The biggest factor for the growing demand in ETFs are fees and costs as 83% of respondents said they choose ETFs because they are the cheaper option. Other factors include trading flexibility (65%) and transparency of holdings (40%).

It is equity ETFs that will remain at the forefront of the ETF adoption as it is set to grow faster than any other ETF asset class over the next three years.

That being said, there has been a significantly large volume of fixed income ETFs come to market this year with competitively low fees which might encourage a spike in adoption for the asset class.

Furthermore, there has been a notably large adoption of active ETF strategies within the Asia Pacific region. The same region which most commonly uses ETFs for capital growth. The US saw 70% of its respondents say they use passive ETFs with 28% using the vehicle to hedge their portfolios and 53% for capital growth.

Regionally, it is the US which remains the most inclusive of ETFs with the investment vehicle making up 41% of client portfolios. This figure is expected to rise even further to 54% in three years.

Second to the States, it is Latin America who favours ETFs in its portfolios ahead of EMEA and Asia Pacific with their ETF usage of 35%, 25% and 23%, respectively, forecasted to rise to 43%, 34% and 33%.

The survey also argues against investors use of ETFs for short-term investing. When asked about their investment time horizon, 49% say they use ETFs for long-term in comparison to 35% who said they use ETFs for short-term. This was the case anyway for all regions except the US which had 40% of respondents use ETFs for short-term investments compared to 28% which use it for long-term.

Bryon Lake (pictured), head of international ETFs at JPMAM, said: “We believe we are at the tipping point of the mass market adoption of ETFs.”

A recent survey by Brown Brothers Harriman found 61% of institutional investors, financial advisors and fund managers plan to increase their asset allocation over the next 12 months.

Lake commented: “ETFs are typically viewed as an extension of investment toolkits to help meet evolving asset allocation needs. And this is what we’re seeing play out in our survey findings in terms of rising ETF allocations.

“What is more, we are finding many investors are increasingly banging the drum for actively-managed ETFs. They are looking for actively managed strategies that can be delivered through the benefit-rich ETF wrapper. This is the kind of innovation investors are now demanding.”

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