Fund managers plan to increase exposure to ETFs and other ETPs

Jun 19th, 2012 | By | Category: ETF and Index News

Over the next three years, fund managers are set to increase their exposure to Exchange Traded Funds (ETFs) and other Exchange Traded Products (ETPs), according to new research from Lyxor, a subsidiary of Societe Generale.

Fund managers plan to increase exposure to ETFs and other ETPs

New research shows that over half of fund managers anticipate that their exposure to ETFs and ETPs will rise over the next three years, with nearly one in four anticipating an increase of 10% or more.

The new research reveals that 54% (of the 131 fund managers surveyed) anticipate that their exposure to ETFs and ETPs will rise, with nearly one in four (23%) anticipating an increase of 10% or more. Almost 6% envisage their allocation to ETFs and ETPs increasing by 30% or more.

When looking at current allocation to ETFs and ETPs from fund managers, Lyxor’s research shows that 81.3% currently have less than 10% of their funds in these products. Only 6.3% have over 30%. These low numbers highlight the potential room for growth for ETFs and other ETPs, as providers seek to take a larger share of overall managed-assets under management.

The growing popularity of ETFs and ETPs amongst fund managers is reflected in the fact that, despite some concerns about the market relating to securities lending and synthetic replication, only 5.8% are ‘very concerned’ about the risks posed by these products.  This finding suggests that the ongoing conversation in the media, which in some cases has overstated the risks of these products, is out of tune with mainstream investor opinion.

Seven out of ten (69%) said that as much due diligence resource should go into selecting ETFs and ETPs as traditional mutual funds.

When asked to consider the three most important factors when selecting an ETF, 67.8% said a low tracking error was the most important criteria to consider, followed by liquidity (65.3%), and having a counterparty risk of less than 10% (56.2%).

Interestingly, fewer than one in five (19%) cited securities lending as the most important factors when selecting an ETF, indicating that investors maybe at ease with securities lending and comfortable with the risk controls, security and collateral arrangements of such lending programmes.

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