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BBH annual survey finds ETFs at the centre of investor portfolios

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Brown Brothers Harriman’s (BBH) seventh edition of its ETF survey reveals that global ETF investors are finding creative ways to use ETFs in driving outcomes for their own clients.

Brown Brothers Harriman’s (BBH) seventh edition of its ETF survey reveals that global ETF investors are finding creative ways to use ETFs in driving outcomes for their own clients.

Brown Brothers Harriman’s Senior Vice President of Global Exchange Traded Fund Services, Ryan Sullivan, says: “In our [survey], US investors ranked actively managed ETFs, alongside low volatility, as the top product types they want more of.  With these findings, plus interest from many of our active mutual funds’ clients, these new product types should have a great opportunity to attract assets.

“However, it’s important that managers launching these products preach patience – the nuances in holdings disclosure, potential for wider spreads, and regulatory approval only for assets trading synchronous to the US market may result in a long runway before these products really take off. In addition, given these products are active management, traditional factors such as performance track record may need to be established before investors decide to buy these products.”

Commenting on the survey, BBH named 2019 as a historic year for ETFs with the market going over USD6.3 trillion and, as they say, showing no signs of slowing, growing at an annual rate of 32 per cent. 

BBH references the milestone European figure this year of assets going over USD1 trillion but also mentions the Greater China market, which it says is poised for accelerated growth, capturing 4 per cent of the market, or USD177 billion in AUM.

Product development dominated 2019 according to BBH. The firm cites the arrival of active non-transparent ETFs in 2020 which it believes stands to bring new managers —and products— to the ETF market. 

“The reason these products may be compelling for some active managers is simple: they no longer have to reveal their ‘secret sauce’ on a daily basis. But, will investors embrace the products? There are encouraging signs captured in this year’s survey — 62 per cent of surveyed US investors plan to increase their allocation to active ETFs in the next 12 months. And active was the top strategy US investors wanted to see more of in the market,” the report says.

BBH believes that as large, established asset gatherers expand to these new innovative structures, these products will allow them to port successful active strategies into ETF wrappers offering investors compelling new product choices.

The report also looks at the rise of fixed income ETFs, which saw, in Europe more assets gathered than equity ETFs for the first time in three years.

“Likewise, in the US, for the first time ever, fixed income ETFs attracted more new money than US equity ETFs. Despite the strong finish in 2019, it appears some investors are bracing for a turbulent year ahead. In the US and EU, fixed income was the top choice for combating market volatility, underscoring the versatility of the ETF wrapper in adverse market conditions. Respondents were also most likely to choose fixed income as the asset class they would most like to see in an active vehicle, which suggests continued growth in the expanding segment of actively managed ETFs.”

And of course, the all-powerful ESG factored ETFs have seen strong demand, especially in Europe, according to BBH. 

“The stated enthusiasm for ESG strategies, however, is somewhat at odds with what we see in the market. ESG ETFs have captured just a fraction of total global ETF AUM, representing USD52 billion through November 2019. But as the adage goes: past performance is no guarantee of future results. Fifty-four per cent of global surveyed investors said they plan to increase allocations to ESG ETFs in 2020.”

BBH closes its notes on the survey with a comment that while global markets in 2019 closed on a positive note, uncertainty is the only certainty in 2020. 

“One thing remains steady: our respondents have shown a willingness to keep ETFs at the centre of their portfolio in good times and bad,” the firm says.

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