Results of the 12th EDHEC European ETF, Smart Beta and Factor Investing

Published by

Oct 1, 2019

Key findings of the latest survey  included the following:

How do investors select and use ETFs?

  • ETF usage is becoming increasingly mainstream. In 2006 45% of respondents used ETFs to invest in equities, compared with 91% in 2019. As for governments and corporate bonds, the figures rose from 13% and 6% in 2006 to 66% and 68% respectively in 2019.
  • ETF usage is becoming more tactical. For the first time, the use of ETFs for tactical allocation was higher (53%) than for long-term buy and hold (51%). This more balanced usage suggests that the ETF market is maturing and users are becoming more proactive.
  • Achieving broad market exposure still tops the list, with 73% of respondents using ETFs frequently for this purpose. However, sub-segment usage has risen, probably reflecting the increasingly tactical role of ETFs in portfolios.
  • Cost and quality of replication are the two main drivers for selecting ETF providers.
  • About two-thirds of respondents (66%) used ETFs to invest in Smart Beta in 2019, a considerable increase since 2014 (49%).

Key objectives driving the use of smart beta and factor investing strategies

  • Improving performance is the main motivation for using Smart Beta and Factor Investing strategies. Managing risk is also considered an important criterion.
  • 68% of respondents feel that smart beta and factor investing bond solutions are especially useful in performance-seeking portfolios, primarily to harvest risk premia.
  • About three-fifths of respondents believe that the three typical factors of the credit risk market, namely carry/level of the yield curve, credit and slope of the yield curve, are the most relevant in fixed-income markets (63%, 60%, and 58% respectively).

Future developments in ETF & smart beta products

  • 31% of respondents want to see more SRI-based ETFs, while similar proportions are interested in ETFs related to multi-factor and smart beta indices (30% and 28% respectively).
  • The cumulative percentage of those that already invest or are considering investing in smart beta and factor investing in the near future is still higher in 2019 (79%) than in 2018 (74%), which leaves room for further development of this investment in the near future.
  • When asked about the smart beta solutions they think require further development by providers, respondents cited fixed income, ESG, and alternative asset classes. They would also like more customized solutions to be developed.
  • Respondents show a significant interest in Fixed-Income Smart Beta solutions and plan to increase their investment in this area. However, they explain that their usage is limited because the current offer does not correspond to their needs in term of risk factor, and due to a lack of research in the area. The development of new products corresponding to these demands may lead to even wider adoption of Smart Beta solutions.

Articles authored by Martin Signer

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