Morningstar UK ETF Survey May 2013

Transcription

1 Morningstar UK ETF Survey May 201

2 Introduction The results from our fifth Morningstar UK ETF Centre survey show an increase in the importance investors are placing on one of the hallmark attributes of ETFs their low costs. Our survey captured a broad range of investors that are either interested in or already investing via ETFs. Out of 60 total responses, 54 came from individual investors whilst 87 came from professional investors, mostly advisers. Half of all respondents have already invested via ETFs, with the remainder still familiarising themselves with these new vehicles. Of those respondents that currently invest in ETFs, the majority own them in an amount that is less than 20 of the value of their overall portfolio. Current users also appear to be a buy-and-hold bunch, with 6 reporting that they plan to trade their ETF holdings only occasionally. If you are unsure or do not think you will invest in ETFs in the future, why? Would prefer to learn more about ETFs before making any decision Professional Investor Individual Investor 6 49 Concerned about the risks of swap-based ETFs Concerned about costs of brokerage fees from purchasing ETFs through exchanges Would prefer to have a manager actively selecting securities rather than a fund that follows an index I do not plan on investing at all 2 4 2

3 Current ETF Investors The survey shows that, for UK ETF investors, the distinction between physical and synthetic replication remains important in their investment decision, with 85 of survey participants stating a specific preference for physicallyreplicated funds over synthetic-replication funds. Although this result is slightly lower than the 89 that responded similarly in last year s survey, it is still significant. Investors remain wary of the counterparty risk inherent in swap-based ETFs. As a result of these persistent investor concerns, leading European synthetic ETF providers have made strategic changes to their product line-ups in recent months by launching new ranges of ETFs which use physical replication. How important is the distinction between synthetic (swap-based) and physical replication ETFs in your investment decision? Very Important 47 Somewhat Important 5 Somewhat Unimportant 6 Not at all Not familiar with this distinction 10 Are you concerned about counterparty risk in ETFs? Very Concerned Somewhat Concerned 51 Hardly Concerned 11 Not Concerned At All 2 Was Unaware of Counterparty 2 Risk in Funds Which of the following ETF structures do you prefer? Physical 85 Synthetic 6 N/A 10 What compensation would you expect for accepting slightly greater counterparty risk in an investment? (tick all that apply) Low Expense Ratio 42 Better Liquidity 2 Lower Tracking Error 14 None of the Above 21

4 It is again evident that the appeal of the ETF vehicle remains clear to both current and prospective investors alike. In particular, ETFs low costs continue to resonate with current ETF investors, with 91 of them citing ETFs low costs as being either a very important or important attribute. Meanwhile, prospective ETF users are putting greater focus on ETFs low costs, with 71 of them citing this attribute as being very important this year, compared to 57 last year. An overwhelming number of survey respondents (94) cited ETFs low costs as the main reason why they would use or recommend ETFs this year. The intraday trading feature of ETFs has also grown in consideration among both current ETF investors and prospective ETF users, with 40 and 21 of them respectively citing ETFs intraday liquidity and trading as being a very important attribute. These results compare to comparable figures of 28 and 16, respectively, from one year ago. Ease of diversification across various asset classes is an ETF trait also largely recognised by investors, with 82 of survey participants seeing themselves using or recommending ETFs for this particular reason. However, only 4 of respondents indicated that they would use or recommend ETFs to complement active managers. If yes, how would you rank the importance of the following attributes of ETFs in your decision making process? Current ETF Investors Potential ETF Investors Answer # # Low Cost Very Important Important Moderately Important Little Importance Unimportant Total Intraday Liquidity / Trading Very Important Important Moderately Important Little Importance Unimportant Total Stable/Passive Portfolios Very Important Important Moderately Important Little Importance Unimportant Total Easier to Invest in Alternatives Very Important Important Moderately Important Little Importance Unimportant Total Ability to Short Sell Very Important Important Moderately Important Little Importance Unimportant Total

5 Prospective ETF Investors Do you see yourself using or recommending ETFs for any of the following reasons this year? To complement active managers 4 Low cost 2 94 Implementing short term tactics 41 Transparency 67 Speed of allocating cash 57 Ease of diversification within specific fixed income asset claims Ease of diversification within equity asset classes 5 82 Ease of diversification for smaller allocations 71 When investing in ETFs, how appropriate do you think they are for each of the following investment purposes? Answer # Investing in well-established, developed markets Very appropriate Indifferent 8 26 Inappropriate 11 Don t know 5 2 Total 2 Investing in hard to reach, niche areas of the market Very appropriate Indifferent Inappropriate 40 1 Don t know 17 5 Total 20 Removing manager risk Very appropriate Indifferent 107 Inappropriate 26 8 Don t know 20 6 Total 20 Longer term investment horizons Very appropriate Indifferent 105 Inappropriate 1 10 Don t know 18 6 Total 14 Low cost investing Very appropriate Indifferent 27 8 Inappropriate 6 2 Don t know 5 2 Total 21 5

6 Professional Investors Closest job description Current level of AUM Financial Intermidiary/Advisor 58 Institutional Portfolio Manager 15 Investment Research 1 Other 15 1 billion or more million million 5 Less than 10 million 11 N/A 8 How do you manage a portfolio? Asset allocation first 68 Investment selection shapes 9 asset allocation N/A 2 Are you interested in investing via ETFs or recommending ETFs in the future? Not sure 61 Yes 28 No 11 Approximately what percentage of your portfolio or assets under advisement is invested in ETFs? Less than More than I do not manage or advice any portfolios 2 If you hold or recommend ETFs in portfolios, what investment types are you likely to hold as ETFs? Country specific equities 18 Sector specific equities Traditional broad equity indices Other Esoteric equity classes 12 Broad fixed income 7 Sector specific fixed income 9 Duration specific fixed income 6 6

7 Would you consider buying or recommending an ETF that trades in any of the following currencies? Pound Sterling U.S. Dollar Euro 22 Other G10 currency Swiss Franc Would you consider buying or recommending an ETF that is listed on an exchange other than the London Stock Exchange? Yes 7 Yes, if no similar ETF is listed on my local exchange Yes, for lower trading costs or expense ratio No

8 Individual Investors How do you manage your own portfolio investments? Size of Investment Portfolio I do not currently invest 1 With the help of an advisor 9 Manage my own 90 1 million or more 7 500k 999, k 499, k 249,999 2 Less than 100k 7 Are you interested in using ETFs in the future? Not sure 49 Yes 5 No 16 Approximately what percentage of your investments is in ETFs? Less than More than 50 I do not currently own any ETF shares 9 10 What investment types are you likely to hold as ETFs? (tick all that apply) Country specific equities Sector specific equities Traditional broad equity indices Other 1 Esoteric equity classes 11 Broad fixed income 18 Sector specific fixed income 7 Duration specific fixed income 2 8

9 Would you consider buying an ETF that trades in any of the following currencies? Pound Sterling U.S. Dollar Euro 21 Other G10 currency Swiss Franc Would you consider buying an ETF that is listed on an exchange other than the London Stock Exchange? Yes 4 Yes, if no similar ETF is listed on my local exchange 28 Yes, for lower trading costs or expense ratio 15 No 22 9

10 Other What kind of investor are you? Private investor 86 Professional Investor 14 Have you ever held any ETFs in your investment portfolios? Yes 51 No/Not sure 45 I do not currently invest 4 Which of the following do you currently invest in? Individual stocks 4 Open end funds 28 Exchange-traded funds 19 Individual bonds 9 Structured products/notes Options/other derivatives Annuities 1 2 Other How often do you expect to trade the majority of your ETF holdings, whether for rebalancing or as part of a trading strategy? Trading throughout the day 1 One trade per week One trade per month 19 One trade every few months to a year 4 Buy once and hold for years 20 No particular pattern 14 10

11 How important is the domicile of an UCITS-compliant ETF in your investment decision? Very important 26 Somewhat important 46 Somewhat unimportant 11 Not at all 6 Unaware of the importance of domicile 11 How did you first hear about ETFs? Newspaper/magazine on ETFs 27 Other online financial media 21 From Morningstar website 1 Never heard of ETFs From an advisor Friend or colleague ETF Provider ad 4 TV story on ETFs 0 Other 25 What brings you to the ETF centre today? Exploring the Morningstar website 44 Looking to learn more about ETFs in general 27 Looking for new investment ideas 22 Using the website tools to find an interesting ETF 7 11

12 For which of the following ETF brands or products have you seen advertising recently? Amundi Comstage 1 Credit Suisse ETF 7 db X-trackers 10 EasyETF 1 ETF Securities 6 ETFlab 0 HSBC 8 ishares 28 Lyxor 8 Powershares 4 Source 1 SPDR UBS 5 5 Vanguard 16 12

13 What are the most important attributes when choosing an ETF provider? Answer # Local presence Very Important 9 1 Moderately Important 11 7 Unimportant Total 04 Educational material Very Important Moderately Important Unimportant Total 0 Brand reputation Very Important Moderately Important Unimportant 0 10 Total 10 Servicing and support Very Important Moderately Important Unimportant 5 17 Total 08 ETF/passive indexing experience Very Important Moderately Important Unimportant 21 7 Total 10 Size/scale of firm Very Important 16 5 Moderately Important Unimportant 17 6 Total 08 Range of funds offered Very Important Moderately Important Unimportant 7 12 Total 11 Price Very Important Moderately Important Unimportant 8 Total 1 Liquidity of funds Very Important Moderately Important Unimportant 1 Total 10 1

14 Providers Response Favourable impression Favourable, owned ETF Heard of company Heard of, favourable Heard of, favourable, owned ETF Heard of, owned ETF Owned ETF Total # # # # # # # # Amundi ComStage Credit Suisse ETF db X-trackers EasyETF ETFLab ETF Securities HSBC ishares Lyxor SPDR Source UBS ETF Vanguard Notes The Morningstar ETF Centre launched on 4th March 2010 and provides access to Morningstar data, tools, and research. The Centre is also home to analyst-driven qualitative research reports on nearly 00 of the largest European domiciled exchange-traded products. Available ETF data includes pricing, performance returns, style box detail, fees, and portfolio composition. Visitors can also search for ETFs based on a chosen Morningstar category or preferred fund group. The Morningstar Quick Rank tool ranks ETFs by performance, and Morningstar s Instant X-Ray allows up to five ETFs to be compared side by side for performance, composition, and fees. Contact For media enquiries, please contact ukmedia@morningstar.com or +44 (0) For commercial enquiries, please contact simon.hodge@morningstar.com or +44 (0) Analyst commentary includes educational slide shows on a range of ETF-related topics, and a monthly newsletter delivers the latest analysis on ETF news directly to sub scribers. In addition, Morningstar s European ETF analyst team hosts monthly webinars with professional investors and advisers; investors and members of the media are welcome to attend. 14