Wealth managers’ use of sector ETFs increasing, reports SPDR ETFs

May 3rd, 2018 | By | Category: Equities

Over half (53%) of UK-based wealth managers are now using sector ETFs to implement investment strategies, according to a recent survey, with the trend expected to increase.

Claire Perryman, UK head of SPDR ETFs.

Claire Perryman, UK head of SPDR ETFs.

The survey, commissioned by SPDR ETFs, the ETF issuing arm of investment manager State Street Global Advisors, shows that one in five managers say they are using sector ETFs more today than they were 12 months ago and 44% are expecting to increase their use of sector ETFs over the next 12 months.

Nearly half (48%) of respondents stated that they expect their level of sector ETF use to remain the same over the next year, while only 4% expect to decrease their holdings.

When choosing a sector ETF, 73% of wealth managers cited the longevity of the fund as an important selection criterion. The liquidity of the ETF and the total expense ratio (TER) of the ETF were cited by 67% and 54% of survey respondents respectively as an important factor in selecting a sector ETF. Only 40% stated the financial strength of the ETF issuer as an important input to the buying decision.

Healthcare was the sector cited as attractive by the most respondents, picked by 47% of managers. This was followed by technology (43%), energy, utilities (both 35%), and financials (31%).

Among those wealth managers who are already using sector investment strategies, two in five (41%) say that they do so because discrete sector exposures offer a wider dispersion of returns compared to other investment styles.

“Since November 2016, we have seen a 47% increase in assets in sector UCITS ETFs compared to a 30% growth in the overall ETF market.”
Claire Perryman, UK head of SPDR ETFs

“The Trump election was a watershed moment for European investor attitude to sector ETF investing,” said Claire Perryman, UK head of SPDR ETFs. “The market quickly identified potential winners and losers emerging from the changing political landscape, and assets flowed into ETFs accordingly. At that time healthcare, infrastructure and financials were the standout sector investment opportunities.

“Today, the sector winners and losers have changed but the dispersion opportunity remains. Since November 2016, we have seen a 47% increase in assets in sector UCITS ETFs compared to a 30% growth in the overall ETF market. As wealth managers seek to build targeted exposures with less concentration risk than single stocks, we expect this trend to continue throughout 2018 and beyond.”

SPDR manages upwards of $160bn in sector ETF exposures globally including 29 physically replicated UCITS funds across global, European and US sectors.

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