Mutual funds losing out as investors shift to ETFs

Global survey finds that more investors have shifted focus in the last year

Mutual funds losing out as investors shift to ETFs
Steve Randall

The strong interest in exchange-traded funds (ETFs) comes at a cost to mutual funds according to a new global report.

More than half of investors (57%) say that they have swapped-out an active mutual fund for an ETF, up from the 39% who said that last year. Many respondents have also switched focus from passive mutuals to ETFs.

The TrackInsight Global EFT Survey 2021 also reveals that cost efficiency is the number one reason for the pivot while liquidity is the main criteria used for ETF selection. Diversification is also a key decision factor.

Among the 373 professional investors from 18 countries who oversee a total of $347bn in ETF assets, around half are planning to increase their exposure to thematic ETFs with technology and ESG sectors the main focus.

TrackInsight’s CEO, Jean-René Giraud, says the survey results reflect a maturing industry with new products, new investors, and new digital ways to operate.

“There are many lessons to be learned from the COVID crisis, but perhaps the most enduring of which is that resilience and adaptability is the essence of survival, and the world’s largest and most sophisticated investors have been quick to embrace many new ideas that are now available as ETFs,” he said.

ETF industry milestone

Giraud added that the ETF industry is heading towards a $10 trillion AUM milestone this year as active strategies, thematics, and new assets like SPACs and cryptocurrencies have helped redefine what ETFs are.

Olivier Paquier, head of ETF Distribution in EMEA at J.P. Morgan Asset Management (who supported the study along with HIS Markit) believes that ESG ETFs have room to grow, with the study showing that despite a tripling of assets in 2020, half of respondents have no exposure to ESG ETFs.

“In terms of what’s driving ETF selection more generally, this year’s survey findings reinforced how the overarching attributes of ETFs – cost efficiency, price transparency and liquidity – that have served investors for more than 30 years, continues to remain in focus,” Paquier added.