- Global ETF assets rose 28% in 2024.
- More investors plan to shift allocations to active ETFs.
- Buffered and fixed-income ETFs are the most popular to manage risk.
Actively managed ETFs saw record inflows in 2024 and 97% of institutional investors plan to increase their allocations this year.
Exchange traded funds, or ETFs, are expected to become even more popular among institutional investors this year, as a hedge against uncertainty in the markets and economy. That is according to the 12th annual Global ETF Investor Survey from asset management firm Brown Brothers Harriman (BBH).
Overall, global ETF assets increased 28% in 2024 to $14.7 trillion, buoyed by strong market performance and significant cash flows.
The BBH found that 95% of institutional investors – including fund managers and financial advisors – plan to increase their allocations to ETFs over the next 12 months – up from 82%. Roughly half of U.S. managers plan to boost their allocations to ETFs by more than 10%. Meanwhile, the percentage in China was 42% followed by Europe at 37%.
This suggests, according to BBH, that investors are looking to further diversify their investments in the face of heightened volatility. Further, 32% are looking for portfolio outperformance through tactical, niche, or narrow sectors of the market, while 31% are seeking long-term growth through core exposures.
Big Inflows Into Active ETFs Expected
The survey – which polled investors from the U.S., Europe, and China — also showed a marked shift into actively managed ETFs, which are those run by portfolio managers. Overall, 97% of those surveyed plan to increase their exposure to actively managed ETFs over the next 12 months. Further, 33% plan to shift passively managed ETFs, those that track indexes, to actively managed ETFs over the next year.
In the U.S., 36% said they would raise their active ETF exposure by more than 25%, compared to 22% in Europe. Further, 53% said they plan to sell index-based ETFs in favor of active strategies.
Active ETFs only represent 8% of the total global ETF market but they are growing fast. Last year actively managed ETFs saw record net inflows of $374.30 billion, boosting assets under management to a record $1.17 trillion.
“We see investors leaning towards active products to help secure specific outcomes, access professional investment strategies, seek relative outperformance, and help manage market volatility,” the report states.
Buffered ETFs Are Most Popular
The survey also probed institutional investors on what types of ETFs they plan to allocate funding to over the next 12 months. The most popular is buffered ETFs at 29%. Buffered ETFs seek to provide investors with limited downside protection against stock market downturns. They also enable them to capture the upside in rising markets, although the return upside is generally capped.
In another sign of the times, this shows that investors are far more worried about managing risk and protecting their assets from steep declines than they are about maximizing returns.
“A lot of investors believe that US equity markets are overvalued and are looking to manage risk accordingly through buffered ETFs,” Andrea Murray, vice president, exchange traded fund services, investor services at BBH, said.
Fixed-income ETFs are also a popular choice, as 29% plan to increase their allocations to these types of ETFs over the next 12 months.
Cryptocurrency ETFs are next at 27% — which could suggest that investors see less correlation between stocks and crypto markets.
Commodity and dividend ETFs are also in demand, with 22% of those surveyed planning to boost their exposure to these types of investments.
Sector or thematic stock ETFs and multi-asset ETFs appear to be a less popular option, as 18% cited increased allocations in these areas.
Overall, 75% of investors say their ETF allocation buckets have increased over the previous five years, with 19% saying theirs had grown by over 25%.
“With record inflows in 2024 and compelling market performance, the ETF market looks set to reach new horizons with no let-up in its innovation, creativity, investor appeal, and growth potential,” the report concludes.