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ETF investors indicate active strategies and product innovation will fuel the industry’s continued growth: BBH

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As the ETF industry reaches a milestone of USD12.71 trillion in global assets, Brown Brothers Harriman writes that its 2024 Global ETF Investor Survey finds that investors plan to further increase their use of ETFs in the next year, while also expanding the number of ETF providers they invest with.

Active ETFs, which have grown at a staggering 38.4 per cent annual rate over the past 10 years, will continue to be a focus for ETF investors as they seek downside protection while pursuing new and innovative opportunities, the firm says.

The report captures responses from more than 300 institutional investors, fund managers, and financial advisers from the United States, Europe, and Greater China. In total, 40 per cent of respondents had more than USD1 billion in AUM.

Key Findings:

ETF usage continues to grow: 82 per cent of investors globally indicated that they would be increasing their use of ETFs, while 97 per cent of US based investors noted they’re planning to increase their ETF usage.

ETF provider relationships expanding: 74 per cent of ETF investors plan to increase the number of issuers that they work with.

Demand for active ETFs continues to rise: A majority of ETF investors (78 per cent) predict an increase in their overall portfolio exposure to active ETFs in the next 12 months and 80 per cent of ETF investors have purchased at least one active ETF in the past 12 months.

ETFs are taking market share from mutual funds: Almost half (48 per cent) of investors cite index mutual funds as a top source from which they reallocated capital to purchase an active ETF.

Investors seek diversification: ETF investors want to see additional product choices in the active ETF market for fixed income (43 per cent)—which can help preserve capital and returns in times of economic stress—as well as liquid alternatives (42 per cent), which offer potential diversification through exposure to alternative investment strategies.

Fixed Income takes centre stage: 70 per cent of ETF investors predict increased exposure to fixed income ETFs in the coming 12 months in line with general positive financial market risk sentiment. These include corporate bond “high yield” ETFs (30 per cent), non-U.S. sovereign debt (30 per cent), and mortgage-backed or asset-backed securities ETFs (29 per cent).

Digital currency ETFs gain popularity: Nearly a quarter of investors (23 per cent) are most bullish about the digital currency/Bitcoin asset class over the next 12 months; other asset classes these investors are bullish on include alternatives (18 per cent) and equities (17 per cent).

“In the current environment, it’s clear that investors are still confident in the ETF industry and are focused on innovative products and strategies that balance the demand for strong returns with mitigating risk,” says Tim Huver, Managing Director, ETF Servicing team at BBH. “In particular, we’ve seen the active ETF category grow in popularity and expect even more managers and investors to allocate their funds to ETFs with an active strategy.

“With accelerated product innovation driving greater diversification at a low cost, the ETF market continues to demonstrate that it has the tools to navigate the varying market conditions for the long term.”

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