European investors have said buffer ETFs are currently the most interesting ETF strategy amid ongoing market uncertainty, according to this year’s Brown Brothers Harriman global ETF investor survey.
The survey, which interviewed 325 ETF investors, found defined outcome ETFs sparked the most interest of all asset classes and themes.
Some 37% of European respondents said they were interested in the asset class followed by multi-asset (30%) and cryptocurrencies (26%).
Despite the increased interest from investors, defined outcome ETFs are yet to pick up pace in Europe, with hesitancy to allocate tied to a lack of familiarity with the structure, rife competition in other fund structures and a stalling from the Federal Reserve to lower interest rates.
They offer investors a pre-defined set of outcomes over a defined period and can protect against market volatility due to a built in buffer from market losses.
There are currently seven strategies available in Europe, with the Global X S&P 500 Quarterly Buffer UCITS ETF (SPQB) housing the most assets at $88.9m.
“In terms of product preferences, ETFs have long since moved beyond the early passive equity mandates to include fixed income, alternatives, commodities, defined outcome, active and thematic strategies,” the report said.
“The investors we surveyed indicated continued interest in new and diverse strategies within the ETF wrapper.”
Investors most bullish on crypto
Just under a quarter of European investors are most bullish on digital currency and bitcoin over the next 12 months, ahead of alternatives (19%) and commodities (18%).
Additionally, some 27% of investors believe the market is more bearish than it should be. The sentiment lies in contrast to some fund selectors that are sceptical of crypto’s inherent investment value.
Larger European issuers have started to enter the crypto space, with DWS most recently launching two crypto exchange-traded products (ETPs) capturing bitcoin and ethereum.
Issuers play most critical role in ETF selection
Elsewhere, the survey found just under half of investors (48%) placed the most importance on the ETF issuer when selecting an ETF, above tax efficiency (42%) and tracking error (35%).
Despite the last year being marked by a race to the bottom for fees across Europe, the expense ratio was the fourth-highest ranking factor when choosing an ETF at 36%.
Actives continue acceleration
Investors plan to increase exposure to actively managed ETFs as the boom continues to accelerate across the continent.
The survey found 78% of investors will increase their active exposure over the next year, tying the rapid growth to the ETF structure’s transparency, liquidity and low costs.
The survey also cited a desire among investors for additional product choices in the active space, with 47% wishing to see more active equity products while 43% wanted to see more fixed income products in the European market.
The structure has hit a number of milestones across 2024, most notably the French government announcing the removal of restrictions that blocked active ETF listings in February, allowing AXA Investment Managers and BNP Paribas Asset Management to list their ETFs in April.
In Q1, flows into active ETFs nearly doubled to €2.1bn, up from €1.1bn in the previous quarter, according to data from Morningstar.
ETF momentum continues
Looking more broadly, 74% of investors in Europe said they will increase their use of ETFs over the next 12 months.
“There is much reason for continued optimism in the ETF industry,” the report said. “This year’s survey shows an overwhelming majority of investors plan to increase their allocation to ETFs in the upcoming year while also expanding the number of ETF providers that they invest with.”
In terms of product preferences, ETFs have long since moved beyond the early passive equity mandates to include fixed income, alternatives, commodities, defined outcome, active, and thematic strategies. The investors we surveyed indicated continued interest in new and diverse strategies within the ETF wrapper.
The increase in allocations echoes with Blackwater’s recent survey which found 92% of mutual fund managers are planning to expand into ETFs or are planning to intensify their due diligence over the next two years.
