Industry Updates

Liquidity the most important factor when selecting ETFs, survey finds

Tom Eckett

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Fund liquidity and total cost of ownership are the two most important reasons for selecting ETFs, according to an investor survey conducted by TrackInsight.

The survey, which interviewed 306 ETF buyers across 17 countries, found over 80% of respondents highlighted fund liquidity as an important factor when choosing an ETF while 74% pointed to the total cost of ownership.

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This, the report said, represents a shift in investor understanding of the benefits of ETFs. In surveys over the years tracking error has been cited as a key criteria however only around 50% of respondents had it down as a very important or important factor.

“Investors finally understand ETFs are not only trackers but strategies that offer modern forms of liquidity and other interesting features that ought to be monitored.”

Furthermore, ETF issuer preference was cited as the second least important reason for choosing an ETF, in a sign the importance of due diligence on the asset manager is fading.

“This can be explained by a maturing industry and a higher level of investor confidence in industry practices and the protection mechanisms provided through regulation and supported by the ecosystem,” the report explained.

ETFs pass liquidity test during coronavirus turbulence

Despite 73% of respondents either investing or considering investing in ESG ETFs, there remains a number of challenges within the space.

The main one, 68% of respondents said, was the lack of consistency across ESG analysis providers while 64% warned of a lack of transparency and simplicity of ESG index methodologies.

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The report said the lack of consistency and transparency was resulting in investors not being “empowered” to make informed decisions.

Furthermore, investors highlighted more could be done by ETF issuers and index providers in the ESG space for specific asset classes such as emerging markets and high yield.

“When asked what type of ETFs professional investors would like to see flourishing on the shelves, we can note an incredibly strong demand for ESG and thematic exposures, as well as more risk-based solutions.

“The difficulties in identifying ESG-compliant ETFs or understanding the ESG strategy that underpins the construction of the portfolio are the most often cited explanations for the lack of uptake.

“With no commonly agreed norm and lack of transparency, investors still heavily rely on external expertise to support their ESG selection process,” the report explained.

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