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Annual BBH survey reveals US ETF investor preferences

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ETF custodian and administrator Brown Brothers Harriman & Co has published its annual survey designed to measure the expectations and preferences of sophisticated ETF investors in the US.

The 2016 survey polled 175 financial advisors and institutional investors on their ETF selection process; comfort with newly launched ETFs; plans for investing in emerging ETF strategies; and views on securities lending; among other items.

“Investors are finding new avenues to use ETFs, and they want more options for active ETF, smart beta and fixed income products,” says Shawn McNinch, pictured, Global Head of ETF Services at BBH. “This year’s survey demonstrated that investors are gaining comfort in employing factor based strategies through smart-beta ETFs and using these products to position their portfolios against volatility and uncertainty, often by reducing allocations to active and even traditional cap-weighted strategies.

“Investors’ outlook on ETFs suggests more willingness to use strategies with shorter track records, both for passive and active funds.  For ETF issuers, these results support an increase in ETF product development and a focus on clearly defined distribution strategies in a competitive market.”
Key findings reveal that smart-beta demand remains strong with 97 per cent of investors planning to maintain or add to their smart-beta positions next year. Minimum volatility and quality are favoured when selecting smart-beta ETFs, the report says while minimum volatility (44 per cent) and quality strategies (42 per cent) are top priorities when selecting a smart-beta ETF.

The survey found that liquidity is top of mind with 67 per cent of respondents stating that liquidity is an important concern for fixed income ETFs. ETF investors see the benefits of securities lending, with nearly two thirds of ETF investors considering an ETF engaging in securities lending.
Investors want more international fixed income and commodity ETFs and active fixed income has gained favour for the third year running.

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