Exchange-traded funds remain the favourite choice of investors for passive investment, in spite of the controversies surrounding the use of ETFs in 2011/12, according to a survey by the EDHEC-Risk Institute.
The EDHEC European ETF Survey 2012, a survey of 212 European ETF investors, finds that satisfaction levels remain high (equity ETF satisfaction rates have been consistently in the region of 90 per cent), and there has been an increase in the use of ETFs for corporate bonds, infrastructure and real estate.
Demand for innovation is high in different asset categories, with 49 per cent of respondents seeking development of emerging market equity ETFs, and there is also demand for new forms of indices, such as ‘smart beta’ ETFs, which seek to generate superior risk-adjusted returns compared to standard market-capitalisation-based equity indices.
The great majority of European investors think that ETFs should remain as beta-producing products (81 per cent of respondents). However, 17 per cent of respondents were of the opinion that ETFs should become actively managed, which is an increase from just 11 per cent in 2011.
In July 2012, ESMA tackled the issue of investor protection from a number of different standpoints, including guidelines stipulating increased disclosure for index-tracking UCITS, increased clarity with regard to use of ETF identifiers, increased disclosure for actively-managed UCITS ETFs, management of collateral for OTC derivative transactions and guidelines for indices tracked by ETFs. These recommendations have been warmly welcomed by investors, with 77 per cent agreeing that the guidelines have achieved their stated aim of improving investor protection.
On the subject of revenues from securities lending, support for the ESMA recommendations is even stronger. Investors are overwhelmingly in favour of the requirement to return securities lending revenue net of costs to the ETF investor, with 84 per cent of respondents in agreement.
The ESMA guidelines have been informative and are setting standards in the right direction for investors in insisting on the transparency of indices globally. This overall issue of index transparency has been very positively viewed by investors.
Valérie Baudson (pictured), managing director, Amundi ETF, says: “Despite the growing maturity of the ETF market, this year’s survey has shown again that the level of satisfaction towards ETFs remains extremely high and that the vast majority of investors plan to increase their usage. The positive changes in investor perception regarding risks and transparency are significant developments for the industry.”
Professor Noël Amenc, director of EDHEC-Risk Institute, says: “There is no doubt that the ETF market has evolved considerably in the past year, with a particular focus on the developing regulatory framework. Investors have sent an important message on the need for transparency to both regulators and product providers.”