VanEck survey reveals advisers flock to ETFs
Financial professionals have boosted their use of exchange traded funds (ETFs), with advisers increasing their use of ETFs to reduce overall portfolio costs and many are using smart beta strategies to replace actively managed funds, according to VanEck's sixth annual smart beta survey.
Strong performance, transparency, lower cost key reasons
Sydney, 13 September 2021 – Financial professionals have boosted their use of exchange traded funds (ETFs), with advisers increasing their use of ETFs to reduce overall portfolio costs and many are using smart beta strategies to replace actively managed funds, according to VanEck's sixth annual smart beta survey.
The annual Australian Smart Beta Survey is the largest survey of its kind in the world, capturing investment trends in the Australian market. This year, the survey attracted 547 responses from financial advisers working in Australia. Respondents felt increased use of ETFs had a positive impact on their business through greater control of portfolio outcomes, increased transparency and improved performance.
The poll revealed 91% of advisers use ETFs in client portfolios, up from 87% in 2020. Of all respondents that use ETFs, 56% use smart beta ETFs as a substitute or replacement for active management while 55% of financial professionals plan to increase their smart beta allocation in the next 12 months. Smart beta is the term given to investment strategies which track an index that differs from the traditional market capitalisation approach of selecting shares, bonds or other assets.
Arian Neiron, VanEck's CEO and Managing Director, Asia Pacific, said: “Not surprisingly, strong performance is the number one motivation for advisers using smart beta strategies, with improved portfolio diversification, reduced volatility and improved risk-adjusted returns also key reasons for using smart beta ETFs.
“We also found that 75% of respondents think smart beta strategies are going to become more prevalent in portfolios; the reason for that could be that advisers are happy with their performance; with 99% of smart beta users satisfied with their strategy,” said Neiron.
While the pandemic continues and unprecedented fiscal and monetary intervention impacts markets, many investors are using ETFs to position their investment portfolio at a time of historically low interest rates. And as knowledge of the benefits of ETFs grow, flows into market have jumped. In the 12 months to 31 August, 2021, the ETF market capitalisation reached $122.78 billion, growing by 74%. “Notably, our survey found that 74% of respondents have increased their allocation to ETFs in the last 12 months,” Neiron said.
Most respondents use at least two smart beta strategies while half are evaluating additional smart beta strategies. One area that has seen huge growth in response to client demand is ETFs offering environmental, social and governance (ESG) investment. The survey revealed that 46% of respondents are invested in ESG strategies. Using screens, both positive and negative, is the most popular ESG approach. Most, or 61%, believe passive investment can be managed responsibly.
The entrenched underperformance of actively managed funds, which typically charge much higher fees, is also facilitating the growth of the ETF market, Neiron said.
“Backing that last point, just 9% of respondents said they did not use smart beta ETFs because they only use actively managed funds. The biggest reason for not using smart beta strategies stemmed from not knowing enough about them, with 44% of respondents who don’t use them giving this as the reason why.
“As knowledge of ETFs and their benefits grows, flows into the sector are expected to gain even greater momentum. The range of ETFs now available includes those offering exposure to equity factors such as Quality and thematic ETFs including those invested in the rapidly growing clean energy and video gaming sectors; this is drawing in the younger demographic and more sophisticated investors alike, which is driving growth of the ETF market overall,” he said.
VanEck is one of the world’s largest issuers of ETFs (Exchange Traded Funds), managing in excess of US$75 billion globally for individual and institutional investors. Founded in New York in 1955, VanEck is a pioneer in international investing and in gold funds, launching the first gold equities fund and the first gold ETF in the US.
In Australia, VanEck is the fastest growing ETF provider in the country and a leader in ‘smart beta’ investment strategies. We have 29 ETFs on ASX that focus on delivering superior performance through beyond-the-usual approaches and providing access to asset classes typically unavailable to Australian investors.
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