Further growth expected in ETFs in line with 2016
A majority of UK independent financial advisers (IFAs) interviewed by ETF provider Source expect assets under management in exchange traded vehicles to continue rising this year, after a record-breaking 2016.
Source questioned some 104 intermediaries in February 2017, and found 56% of respondents expect this area of the investment market to continue attracting inflows from investors.
Last year was a record-breaker in terms of inflows into ETFs, with some $389bn of net sales over the year, according to end-of-year data from ETFGI. The first two months of 2017 have shown no sign of a slowdown, with exchange traded products globally taking in another $131bn.
According to Source’s research, only 3% of IFAs expect a decrease in global assets in ETFs, while just over a quarter (26%) expect the amount invested to remain the same going forward.
Meanwhile, the research also found one in seven IFAs (15%) is expecting to increase their own clients’ allocation to ETFs over the course of the year, while only 3% foresee this allocation decreasing. However, the majority of respondents (70%) said they plan to keep allocations at their current levels.
ETFs in client portfolios
Source said its previous research, for which it interviewed 92 intermediaries in September 2016, found ETFs made up 12% of total assets in client portfolios on average, though more than half of respondents (59%) had said ETFs accounted for up to 15% of client AUM.
This figure is consistent with the allocation to passive vehicles across the UK retail investment industry as a whole. At the end of February, some 13.8% of industry funds under management were held in tracker funds, up from 11.6% in February 2016.
Underperfomance of active funds influencing the uptake of passive vehicles
The uptake of passive vehicles in the UK has been propelled by numerous recent studies that have pointed to the underperformance of active funds versus passive vehicles, most notably the Financial Conduct Authority’s Asset Management Market Study published late last year, which identified £109bn of assets sitting in expensive active funds that failed to outperform the market.
Meanwhile, this week saw the publication of the latest data by S&P Dow Jones Indices, which revealed that 87% of UK actively managed equity funds had underperformed the stock market in 2016, up from 22% the previous year.
The data provider attributed this to managers being “caught off guard” by the unexpected outcomes of the EU referendum in Britain and the US Presidential Election, and the unpredictable reaction of markets to these events.
Investor nervousness about the geopolitical situation in Europe and the UK, and elsewhere, could also be a factor driving them into passive vehicles which allow them to move in and out of markets with more ease and speed.