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(Editor's note: This article also appears at IU.com's sister site IndexUniverse.eu.)
The proportion of European investors using equity ETFs has more than doubled since 2006, according to the recently released EDHEC European ETF Survey 2009.
The EDHEC research team surveyed 360 professional users of exchange-traded funds from across the region, and showed that the breadth and depth of their ETF use has increased dramatically over the last three years.
At the same time, the popularity of certain types of ETF, whether classified by asset class or fund type, has increased by more than that of others. And the survey's respondents vary in how they use ETFs within their portfolios.
IndexUniverse.eu contacted leading ETF issuers in Europe with a selection of EDHEC's findings and asked them to comment on the results.
Dramatic Increase In Usage
EDHEC's survey results show that the use of equity ETFs within European portfolios has risen from 45% to 95% within three years. The question of usage was addressed only to those investors who take a core-satellite approach to investment, and around a third of those initially surveyed replied that they had never invested in ETFs, and did not complete EDHEC's questionnaire. Nevertheless, the increase in equity ETF use among survey respondents is still notable. Government bond ETFs were used by 40% of those surveyed in 2008, and by 80% in this year's survey. Corporate bond and commodity ETFs were also used by more than half the 2009 survey's respondents. ETFs are clearly now a mainstream financial instrument for European institutional investors.
Which Type Of Tracker?
The EDHEC team asked the survey respondents to compare ETFs with other types of tracker products, notably futures, total return swaps and index funds. While the responses varied according to which attributes were being assessed—liquidity, costs, tracking error, transparency, product range, minimum trading size, operational constraints and regulation were some of the criteria used—83% of those surveyed expected their use of ETFs to increase further. By contrast, more respondents expected to reduce than to increase their use of index funds and total return swaps. Futures saw a smaller balance of respondents in favour of increasing their usage.
ETFs should therefore continue to gain market share in Europe at the expense of other "delta-one" financial instruments.
When asked which type of ETF they prefer, a large majority of those surveyed replied that they prefer passive ETFs (82%) using pure (or full) replication (76%). To be fair to advocates of synthetic or swap-based replication, the EDHEC authors concede that they did not ask respondents to reply whether the perceived lower costs and lower tracking error of swap-based ETFs outweighed this initial preference.
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