The EDHEC European ETF Survey 2011

The results of the survey show that the use of ETFs has considerably stabilised. While investors are using ETFs more heavily for dynamic strategies and specific sub-segment exposure than in the past, the main use of ETFs remains long-term buy and hold investing into broad market indices. Investors are also moving towards applying ETFs more for portfolio optimisation as well as for risk management, and they continue to have a demand for ETFs mainly as index replicating products, rather than as active funds. This finding underlines that ETFs are mainly used as beta tools or asset allocation tools, thus allowing investors to focus on the question of beta management which has been pointed out as being of first-order importance in investment management, rather than focusing on security selection issues which are only of third order importance (Amenc et al. 2010c).

The findings have also suggested that compared to the current issues raised by financial authorities and international organisations, investors have a more differentiated view on different replication methods, and they take into account several dimensions such as cost, tracking error, accessibility of broad indices, among others when making choices on the preferred replication mechanism. Depending on the objectives at hand, different replication mechanisms are perceived to have different types of benefits. Investors also acknowledge that the current education on the differences between ETFs and ETPs needs to improve in order to avoid confusion. In terms of future use, a vast majority of respondents (63%) indicate that they intend to increase their allocation to ETFs in the future. Respondents also intend to increase their investment in futures, while they expect their use of traditional index funds to stay stable on average and that of total return swaps is expected to decrease.