ETFs continue to grow among institutions, but pivots are clear

More than half of investors (57%) prefer utilizing a proprietary model over ETF issuer models when selecting ETFs.

“The macro uncertainty we continue to face has driven investors across type and geography to adapt their portfolios to add protection and capture opportunity,” said Shawn McNinch, Global Head of ETFs at BBH. “At its core, the data shows that investors continue to embrace ETFs as a vehicle of choice, with emerging categories such as active and fixed income continuing to gain ground. It also demonstrates that the way investors utilize ETFs is evolving, and asset managers and service providers must constantly adapt to meet these changing demands.”

2023 vs. 2013

The BBH survey marks a decade of research into the ETF market, which has grown 16% annually.

The firm’s research shows how investors have changed the way they approach the ETF market:

  • Changing lens: Expense ratio, ETF issuer, and tax efficiency – in that order – are the three most important factors for investors when selecting ETFs in 2023. In 2013, the top three, in order, were exposure, ETF brand, and expense ratio.
  • All hail spreads: In 2023, 61% of investors say spreads are extremely or very important when selecting an ETF. By comparison, in 2013, only 2% of investors picked trading spreads as the most important factor when selecting an ETF, and 43% said spreads were the least important factor. This indicates the focus on trading and the impact of spreads to the total cost of ownership of an ETF.
  • Active has arrived: ETFs are no longer as synonymous with passive investing as they were in 2013. Over the last three years we have seen an impressive 52% annual growth rate bringing the active ETF space to $342bn AUM1.
  • Flight to safety: Today, 46% of investors plan to increase fixed income ETF allocations, versus 11% in 2013. Over the last 10 years, the number of fixed income ETFs to come to market has substantially increased, thus, investors now have more choices.

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