Nearly half (40%) of all client money allocated to exchange-traded funds (ETFs) will be in active or smart beta strategies by 2023, according to the respondents* of JP Morgan Asset Management’s (JPMAM) Second Annual Global ETF Survey.

Survey participants, already regular users of active and smart beta ETFs, believe their clients’ ETF allocations held in passive products will decline to 61% of portfolios over the next three years, while the share of assets in active and smart beta ETFs will continue to grow substantially.

The Global ETF Study 2020 took place in April 2020, with 320 survey respondents in the US, EMEA, Asia Pacific and Latin America taking part. 

While US-based respondents expect active ETFs to rapidly gain an edge in the next few years, making up more than a quarter of ETF allocations by 2023, APAC based respondents predict smart beta products will grow significantly faster in that region, the survey showed.

It also noted that cost efficiency, ease of trading and liquidity, diversification and risk management were the most important benefits of ETFs.

Beyond this, participants increasingly viewed active ETFs as a tool to add alpha, or as a means to achieve specific investment objectives, like sustainable investing.

JPMorgan ETFs survey

Source: JP Morgan Asset Management

Jed Laskowitz, global head of asset management solutions at JPMAM, said: “We’re seeing a significant shift in sentiment and in the way investors use ETFs in portfolios. They are exploring their options and increasingly looking to diversify their use of ETFs beyond passive strategies.

“For example, the current and expected growth in ESG ETFs and active ETFs is proof that these vehicles are likely to play a bigger role across investor portfolios.”

ESG demand drives ETF growth

Environmental, social, and corporate governance (ESG) and thematic ETFs are seen as key growth drivers in the near future, the study revealed. Globally, more than half (59%) of respondents predicted strong growth in ESG ETFs by 2023, while 42% believe thematic ETFs will similarly grow over the same period.

As ESG gains familiarity across the industry, many investors want to use ESG ETFs to help align their investments with their values and beliefs, according to respondents. ESG ETFs are earmarked for significant expansion by around seven in 10 respondents in EMEA (72%), Asia Pacific (70%) and Latin America (68%).

Survey prticipants highlighted several factors were driving client appetite: rising concern over climate change; a growing perception that taking ESG criteria into account can enhance risk management and improve risk-adjusted returns; there was also a preference for a more values-based approach to investment from younger investors.

ESG interest may also fuel the future growth of active ETFs, as these structures are well suited for such investment strategies, the study concluded. 

Furthermore, in this year’s IPE ETF Guide, IPE Magazine’s 8th annual report on the global ETF market for institutional investors, JPMAM highlights the advantages that active ETFs can bring to a portfolio and takes a closer look at how its Research-Enhanced Index (REI) strategy can provided investors with the “best of both worlds”.

The guide, which includes JPMAM’s contribution, will be distributed with the October issue of IPE Magazine.

*Survey respondents included independent wealth and asset managers, discretionary fund managers, independent advisory and brokerage firms, private banks, fund-of-funds, insurance companies and investment platforms for defined contribution plans. To download a summary of the survey results, click here.

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