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Professional ETF buyers to seek out more product providers, says HSBC

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More than a quarter of professional buyers of exchange-traded funds expect to widen the range of ETF providers they use over the coming three years, according to a survey commissioned by HSBC Global Asset Management.

The report, which focused on the four largest ETF markets in Europe – the UK, Switzerland, France and Germany – further supports the assertion that the European ETF buying community wants to diversify across a wider range of providers going forward, with 74 per cent of respondents asserting they would not allocate any more than 20 per cent to one provider, with the average allocation being 15.5 per cent.

Only 12 per cent of respondents foresee their exposure to one provider increasing over the next three years.

Of those interviewed, 50 per cent of discretionary IFAs, expected to have less exposure to one provider over the next three years, while 40 per cent of individual fund managers expect to do the same.

The analysis concluded that, among ETF buyers, the top three sought out characteristics when investing, in descending order, were physical replication, liquidity and quality of the product provider.

But while the importance of liquidity was emphasised, the survey found that a significant proportion of professional ETF investors were investing for the medium to longer term, with 32 per cent saying they aim to hold equity ETFs for a number of years, while 37 per cent say likewise for fixed income funds. Notably in the UK, 55 per cent stated their typical or average holding period for equity and fixed income ETFs was actually over a number of years.

Phil Reid, UK head of external distribution at HSBC Global Asset Management, says: “Although ETFs are known for allowing intra-day trading, our findings highlight that more buyers are holding their own ETF investments for months, if not years, as such investors appear to value the flexibility even if they do not use it. Investors also clearly place a very high value upon replication methodology, tracking error management and the overall governance around the ETFs themselves, for example through the policies around issues such as stock lending.”

When it came to responding to how value is added for clients when selecting ETFs; liquidity, research, tactical asset allocation and dealing with and understanding risk were of the most critical importance to professional buyers – notably, 72 per cent of those surveyed believe tighter regulation around sales and advice of listed products is on its way.

Reid adds: “As the market grows ETF buyers look set, according to our study, to use a wider range of providers. HSBC is committed to delivering a robust range of good value, physically replicated ETFs which provide professionals investors with a strategy by which they can access both the major developed and emerging market equity indices.”

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