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ESG ETF demand down in Europe but thematic ETFs are going from strength to strength, according to latest BBH report

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The latest and eighth annual survey from ETF custodian and administrator Brown Brothers Harriman (BBH) 2021 Global ETF Survey, covering investors from Europe, the US, and Greater China, reveals that ETF allocation has continued to rise globally. 

The firm found that despite Covid-induced market volatility, 72 per cent of their global respondents are still planning to increase their ETF allocation in the next 12 months. However, ETF allocation remains lower in Europe (62 per cent) compared to 76 per cent in both the US and Greater China. 

In a change from last year’s findings, BBH reports that ESG investment has declined in Europe, with 67 per cent of European investors planning to increase their allocation to ESG ETFs over the next year, a drop of 6 per cent compared to last year’s results.  

By contrast, 80 per cent of investors in the US and 92 per cent in Greater China are planning on increasing their investment in ESG products, a respective increase of 11 per cent and 13 per cent against the 2020 Survey. While ESG is booming in the US and Greater China, it may be seeing signs of saturation in Europe, BBH observes. 

There’s a growing global appetite for active ETFs, the report found, with 65 per cent of global respondents planning to increase their exposure to active ETFs, up from 57 per cent in 2020. However, active ETF adoption remains below the global average in Europe, where only 50 per cent of investors plan to increase their active ETF allocation, compared to 71 per cent both for the US and Greater China. 

Nevertheless, this still represents a 7 per cent increase in Europe from last year, BBH notes. 

Meanwhile, thematic ETFs are going mainstream, with 80 per cent of global investors increasing their allocation to thematic ETFs in 2021, although Europe also remains behind in this space, BBH says. While 81 per cent of investors in the US and 86 per cent in Greater China are planning on increasing their exposure to thematic ETFs, only 69 per cent in Europe are planning on doing the same. 

Innovative emerging investment strategies such as thematic—including robotics and digital assets—combined with their resilience in the wake of pandemic-induced volatility helped fuel demand for ETFs in 2020, the firm says. 

BBH measured the expectations and preferences of nearly 400 institutional investors, financial advisers, and fund managers from the United States, Europe, and Greater China to identify key trends, highlight changing sentiment, and explore areas of innovation in the dynamic ETF marketplace.  

The firm notes that 2020 was marked by volatility and sell-offs, but also sizable flows into ETFs—especially fixed income ETFs, which saw strong flows following market volatility in Q1 of last year. The survey found that 66 per cent plan to increase fixed income ETF allocations this year and 42 per cent said they buy fixed income ETFs during periods of heightened volatility where the ETF offered transparency and liquidity when compared to the individual bonds.   

“2020 was a year of volatility, but it was also a banner year for ETFs,” says Shawn McNinch, Global Head of ETF Services at BBH. “The resiliency of the ETF structure and supporting capital market infrastructure saw them not only weather the storm, but cement their status as a go-to option for investors to trade, especially in times of market stress.” 

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