Active and smart beta products are expected to draw almost 40% of all money allocated to exchange-traded funds (ETFs) within the next three years by investors seeking alpha, or excess return over a benchmark index, according to a global survey by J.P. Morgan Asset Management.
It found that 21% of allocations are expected to go into active funds and 18% into smart-beta funds, up from the current 16% and 15%, respectively. Overall allocations to these products is now 31%.
The survey conducted in April also found that allocation to passive ETFs is expected to decline to 61% from 69% currently, and 80% three years ago.
Respondents were 320 professional investors who are regular users of ETFs, including from wealth and asset management companies, insurers and private banks.
"Cost efficiency, ease of trading and liquidity, diversification and risk management are cited by global respondents as the most important benefits of ETFs,” says the survey report published on September 15. “Beyond this, they increasingly view active ETFs as a tool to add alpha, or as a means to achieve specific investment objectives, like sustainable investing.”
According to Jed Laskowitz, global head of asset management solutions at J.P. Morgan Asset Management, there’s a “significant shift” in investor sentiment and how they use ETFs in portfolios.
"They are exploring their options and increasingly looking to diversify their use of ETFs beyond passive strategies," he says in a statement accompanying the report.
ETFs are increasingly viewed as tools that can help to meet varied financial and investment objectives, adds Sean Cunningham, the company’s head of Asia ETF.
"We think ETFs will continue to be utilised as cost-efficient, flexible wrappers for a growing range of investment styles and underlying assets, as the technology continues to play a role in the democratisation of investing," he says.
A majority, or 59% of respondents, expect demand for ETFs with environmental, social and government (ESG) themes to grow over the next three years, with seven in ten investors earmarking these funds for “significant expansion”.
"As ESG gains familiarity across the industry, many investors want to use ESG ETFs to help align their investments with their values and beliefs, according to respondents," the report says.