Fees drive investors to ETFs

ETFsInvestors are turning to exchange-traded funds (ETFs) as a substitute for actively managed funds to cut their costs, says research from the Edhec Risk Institute.

A majority, 64%, of the 222 investors polled said they were increasing their use of ETFs as an alternative to active managers, while 42% were boosting ETF usage in place of other index products.

The Edhec European ETF Survey 2014 found these changes were primarily motivated by cost, with 70% saying this was the factor driving them towards ETFs over other options. Performance was the second most significant factor, with 45% of respondents citing this as an incentive. Liquidity and transparency were also influential criteria.

Among the respondents that were using ETFs as a substitute for active managers, the research found 27% investing in products tracking smart beta, while 40% were considering investing in these products in the near future.

Overall, investor satisfaction with ETFs remained high for 2014, with government bond, corporate bond, and equity ETFs all seeing increases in satisfaction rates up to around 90%.

In contrast, satisfaction rates for alternative asset class ETFs were found to be either lower or significantly less stable over time. Hedge fund ETFs showed the least positive response from investors at 62%, and have been especially variable over time, with satisfaction rates ranging between 30% and 60% over the last eight years.

The survey was completed in partnership with Amundi ETF and Indexing at the end of 2014. Participants held total assets under management of over €3 trillion.

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