In a new survey, The EDHEC European ETF Survey 2006, the EDHEC Risk and Asset Management Research Centre has carried out an in-depth study on the use of ETFs (Exchange-Traded Funds) by European investors.
The results of the survey show that following rapid growth, ETFs are being widely used by European institutional investors, private bankers and asset managers.
The increasing popularity of ETFs is reflected in the responses of survey participants. More than half of the respondents are current or planned users of ETFs in equity investments (61 percent), and this is the case for more than a quarter of respondents (26 percent) for bond investments.
More remarkably, among those that use Equity ETFs, 92 percent were satisfied, which indicates an extremely high level of satisfaction. With 45 percent of responses, the most distinct reason for satisfaction was the reliability of the tracking error. 23 percent were satisfied with the good performance of ETFs, while 21 percent were pleased with the level of liquidity, and only 4 percent cited the reduced expenses of ETFs. Interestingly, half of the respondents who were not satisfied with Equity ETFs pointed to the poor level of liquidity of ETFs.
However, only a low percentage of respondents use ETFs for other asset classes than stocks. In particular bond ETFs, especially for certain maturity segments, are not widely used. This is surprising given that more efficient bond benchmarks (or core portfolios) can be constructed using an optimal allocation between subcategories and that alpha-generating strategies (or satellite portfolios) have been shown to be achievable using tactical allocation between such indices.