GlobalETF Study
2020
2 | GLOBAL ETF STUDY 2020
AGENDA
EXECUTIVE SUMMARY
1 ETF Market Growth: The Rising Role of active
and smart beta ETFs and ESG – 5-22
2 ETF Benefits and Risks – 23-32
3 Active ETFs – 33-48
4 Fixed Income ETFs – 49-56
J.P. MORGAN ASSET MANAGEMENT | 3
EXECUTIVE SUMMARY: MOVING TO ETFS AS TOOLS TO SOLVE SPECIFIC PROBLEMS
THE TREND TO ACTIVE AND SMART BETA ETFS AND ESG
ETFs are increasingly used for active and smart beta investing, in addition to passive investing. By 2023, respondents expect around 40% of ETF allocation in their client portfolios to be in active or smart beta ETFs. ESG and thematic ETFs are key growth areas, with active ETFs seen by larger investors in particular as suitable for ESG investing.
LOW COST AND LIQUIDITY THE BIGGEST BENEFITS
Low cost investment is the most important benefit of ETFs, followed by ease of trading/liquidity. For respondents with a lower AUM, diversification and risk management are important benefits. However, liquidity in a bear market is seen as one of the biggest risks of ETFs, followed by market distortion.
ACTIVE ETFS ARE USED FOR SPECIFIC AIMS
Those with higher AUMs are more likely to see active ETFs as a tool to add alpha, but otherwise active ETFs are seen as most suitable for targeted investing and achieving specific aims, such as ESG. Track record is the most important factor when selecting an active ETF provider, followed by investment philosophy and trading expertise.
COST AND CONTROL KEY TO FIXED INCOME ETFS
Reducing cost and adding control are seen as key benefit of fixed income ETFs, as well as simplifying bond exposures. Increasing the product range is seen as key to expanding the use of fixed income ETFs, as this would give exposure to sectors of interest, such as corporate, high yield and emerging market debt.
4 | GLOBAL ETF STUDY 2020
SAMPLE BREAKDOWN
EMEA120
United States120
AsiaPacific
40
LatinAmerica
40
Global320
77%User
23%Non-user
0
5
10
15
20
25
24%
Independent Wealth / Asset Manager
Discretionary Fund Manager
Independent Advisor / Broker Private Bank /
Bank trust
Investement Platform Provider for DC Plan
Insurance CompanyFund of Funds
23% 21%17%
6%6%3%
Less thanUSD 500m
USD 500mto less than
USD 1bn
USD 1bnto less than
USD 5bn
USD 5bnto less thanUSD 20bn
USD 20bnto less thanUSD 50bn
USD 50bnto less thanUSD 250bn
USD 250bnor more
Total AUM USD 12.9 trillionAverage AUM USD 40.3 billion
J.P. MORGAN ASSET MANAGEMENT | 5
1. ETF Market Growth: The Rising Role of active and smart beta ETFs and ESG
6 | GLOBAL ETF STUDY 2020
INVESTORS CONTINUE TO MAKE MORE USE OF ACTIVE
AND SMART BETA ETFS
• The respondents to the study are increasing their use of active and smart beta ETFs. In two to three years’ time, the respondents expect active and smart beta ETFs to each take around one-fifth of their clients’ portfolios.
• While the use of active and smart beta ETFs is rising, these styles are still mainly within the equity and fixed income asset classes according to the results.
J.P. MORGAN ASSET MANAGEMENT | 7
12% 16% 21%
8% 15% 18%
80% 69% 61%
3 years ago Today Next 2–3 years
3 years ago Today Next 2–3 years
Passive ETFs
Active ETFs
Smart Beta
66%
23%
6%
4%
2%
63%
24%
7%
4%
3%
62%
23%
8%
4%
3%
Equity ETFs
Fixed Income ETFs
Alternatives ETFs
Multi-Asset ETFs
Other ETFs
Activ
e v
Pass
ive
Asse
t cla
ss
Q1. Approximately what percentage of your clients’ overall portfolio is allocated to the following? Has this changed over the last 3 years and how do you expect it to change over the next 2-3 years?
8 | GLOBAL ETF STUDY 2020
ACTIVE ETFS SET TO BECOME OVER A QUARTER OF PORTFOLIOS IN THE US
• The biggest move away from passive ETFs to active ETFs is reported by respondents from Latin American, followed by the US and then EMEA.
• Respondents in the EMEA region are the most diversified among different asset classes by region. Asset allocation is also relatively stable over time by region, reinforcing that ETF diversification is predominantly by ETF style, ahead of the underlying asset classes used.
J.P. MORGAN ASSET MANAGEMENT | 9
United States EMEA
Passive ETFs 82% 76%
Active ETFs 2% 3%
Smart Beta
Equity ETFs
Multi-Asset ETFs
Fixed Income ETFs
Other ETFs
Alternatives ETFs
16% 21%
71%
4%
25%
3 years ago Next 2–3 yearsToday
3 years ago Next 2–3 yearsToday
86%
4% 6%
10% 15%
69%
16%
15%
3 years ago Next 2–3 yearsToday
78% 62%
14% 19%
8% 19%
55%
26%
19%
3 years ago Next 2–3 yearsToday
80% 72%
14% 18%
6% 11%
64%
21%
15%
3 years ago Next 2–3 yearsToday
90%
8%
2%
1%
0%
85%
7%
6%
3%
0%
81%
8%
8%
3%
0%
3 years ago Next 2–3 yearsToday
64%
30%
3%
2%
1%
66%
26%
4%
2%
1%
65%
28%
3%
2%
1%
3 years ago Next 2–3 yearsToday
70%
21%
5%
3%
1%
68%
23%
4%
2%
3%
65%
23%
6%
3%
3%
3 years ago Next 2–3 yearsToday
56%
27%
8%
6%
3%
52%
28%
9%
5%
4%
54%
26%
11%
5%
5%
Asia Pacific Latin America
Q1. Approximately what percentage of your clients’ overall portfolio is allocated to the following? Has this changed over the last 3 years and how do you expect it to change over the next 2-3 years?
10 | GLOBAL ETF STUDY 2020
GROWTH EXPECTATIONS VARY REGIONALLY WITH ACTIVE ETFS AHEAD IN THE AMERICAS
• Overall, investors expect to see higher growth rates for active and smart beta ETFs than for passive ETFs but growth expectations vary widely by region.
• Investors in Latin America and the US predict the strongest growth for active ETFs. In contrast, smart beta and passive ETFs are expected to grow more than active ETFs in the EMEA and, in particular, the Asia Pacific region.
J.P. MORGAN ASSET MANAGEMENT | 11
Q3. What level of growth do you think each of the following ETF classes will experience over the next 2-3 years? Please rate on a scale of 0-5 where 0 = No growth at all and 5 = Strong growth
% Strong Growth (4+5)
Passive ETFs
Active ETFs
Smart Beta
37%
38%
32%
Global
25%
53%
48%
Asia Pacific
35%
15%
15%
Latin America
50%
43%
33%
United States
28%
34%
32%
EMEA
12 | GLOBAL ETF STUDY 2020
ESG AND THEMATIC ETFS SEEN AS KEY GROWTH AREAS IN THE NEAR FUTURE
• Investors outside the US expect higher growth from ESG and thematic ETFs in the next 2-3 years, compared to smart beta and active ETFs.
• In the US, investors expect higher growth with active equity and equity smart beta, rather than thematic ETFs, although ESG ETFs are also expected to grow, albeit at a lower rate than in other regions.
J.P. MORGAN ASSET MANAGEMENT | 13
Global
59%
42%
34%
33%
30%
24%
20%
16%
7%
7%
7%
5%
ESG ETFs
Thematic ETFs
Active Equity ETFs
Equity Smart ETFs
Active Fixed Income ETFs
Active Alternatives ETFs
Alternatives Smart ETFs
Fixed Income Smart ETFs
ETF of ETFs
Inverse ETFs
Leveraged ETFs
Leveraged Inverse ETFs
Latin America
68%
55%
33%
15%
50%
28%
28%
18%
5%
0%
3%
0%
Asia Pacific
70%
45%
38%
25%
23%
8%
10%
15%
8%
10%
5%
10%
TOP
3
EMEA
72%
52%
25%
35%
22%
25%
25%
13%
4%
7%
6%
4%
United States
41%
27%
43%
38%
35%
26%
17%
18%
11%
9%
9%
7%
Q3. What level of growth do you think each of the following ETF classes will experience over the next 2-3 years? Please rate on a scale of 0-5 where 0 = No growth at all and 5 = Strong growth
% Strong Growth (4+5)
14 | GLOBAL ETF STUDY 2020
HOW GROWTH EXPECTATIONS FOR ETFS VARY BY ASSETS UNDER MANAGEMENT
• The bigger the respondent’s assets under management (AUM), the more likely they are to expect strong growth for three types of ETF in the next few years: ESG ETFs, thematic ETFs and active alternatives ETFs.
J.P. MORGAN ASSET MANAGEMENT | 15
Smart Beta
Active ETFs
Passive ETFs
ESG ETFs
Thematic ETFs
Active Equity ETFs
Equity Smart Beta
Active Fixed Income ETFs
Active Alternatives ETFs
Alternatives Smart Beta
Fixed Income Smart Beta
ETF of ETFs
Inverse ETFs
Leveraged ETFs
38%
37%
32%
59%
42%
34%
33%
30%
24%
20%
16%
7%
7%
7%
5%Leveraged inverse ETFs
Global
42%
37%
27%
46%
26%
30%
35%
26%
19%
19%
10%
5%
10%
4%
10%
Less than $1 billion
32%
38%
38%
57%
38%
40%
24%
33%
22%
17%
11%
7%
3%
6%
1%
$1 billion to $20 billion
40%
36%
29%
72%
58%
30%
41%
30%
29%
25%
25%
9%
10%
9%
7%
$20 billion or more
Q3. What level of growth do you think each of the following ETF classes will experience over the next 2-3 years? Please rate on a scale of 0-5 where 0 = No growth at all and 5 = Strong growth
% Strong Growth (4+5)
16 | GLOBAL ETF STUDY 2020
HOW VIEWS ON KEY GROWTH FACTORS FOR ETFS VARY BY REGION
• Rising demand for ESG is particularly powerful for ETF growth in the EMEA and Asia Pacific regions. Access to new market segments is another key growth factor, especially in Asia Pacific and the US, while tech developments are seen as the biggest growth factor in Latin America.
• For non-ETF investors, ESG investing and tech developments are seen as the strongest factors for ETF growth.
J.P. MORGAN ASSET MANAGEMENT | 17
Rising demand for sustainable/socially responsible/ESG investing
Increasing accessibility of ETFsto new segments of financial markets
Technological developments (AI, machine learning, data analytics etc.)
The proliferation of a multitudeof ETF products and strategies
The role of regulation in openingthe ETF market to new groups of investors
Education and understanding of ETF
Asia Pacific
50%
55%
28%
45%
15%
8%
Global
51%
47%
38%
37%
34%
33%
User
50%
52%
35%
36%
32%
31%
Non-user
53%
32%
48%
41%
40%
37%
Latin America
35%
48%
60%
45%
45%
48%
United States
45%
49%
32%
35%
36%
37%
EMEA
63%
43%
41%
33%
35%
31%
TOP
3
Q4. How much do you think each of the following factors are impacting the growth of the ETFs market? Please rate on a scale of 0-5 where 0 = Not impactful at all and 5 = Very impactful
% Impactful (4+5)
18 | GLOBAL ETF STUDY 2020
INVESTORS EXPECT TO SEE A PORTFOLIO TILT TOWARDS GLOBAL AND EMERGING MARKETS
• In terms of regional asset allocation, allocations to the US are expected to fall slightly, with higher allocations to emerging markets and China.
• EMEA portfolios have the most diversified allocations, followed by Asia Pacific, with portfolios in the Americas, having a significantly higher US weighting.
J.P. MORGAN ASSET MANAGEMENT | 19
Emerging markets
China
United States
Developed Europe
Global markets
Other developed markets
Emerging markets
China
United States
Developed Europe
Global markets
Other developedmarkets
Today Next 2-3 years
Next 2-3years
Next 2-3years
Next 2-3years
LATIN AMERICAUNITED STATESEMEA
11
5
51
6
55
1315
12
14
6
12
3
6812
10
5
66
102 2
3 2
6
Next 2-3years
ASIA PACIFIC
467
9
16
9
14
516
108
7
18
TodayToday
6511
9
33
4
970
97
91
Today
34
18
83
19
4
37
20
23
18 134
Today
14
GLO
BAL
%RE
GIO
N %
Q2. And approximately what percentage of your clients’ ETF portfolio is allocated to the following markets? And how do you expect it to change over the next 2-3 years?
J.P. MORGAN ASSET MANAGEMENT | 21
2. ETF Benefits and Risks
22 | GLOBAL ETF STUDY 2020
FOR MOST, LOW INVESTMENT COSTS AND LIQUIDITY ARE THE KEY ETF ATTRIBUTES
• While low investment cost is given as the top ETF attribute by all regions and both ETF investors and non-ETF investors, the rating of other attributes varies.
• Liquidity is the next key attribute, apart from in the EMEA where simplicity and flexibility matter more. Diversification and risk management are important attributes in LatAM and the US and also among non-ETF investors.
J.P. MORGAN ASSET MANAGEMENT | 23
Q7. What do you see as the most important attributes of ETF products and strategies?
Non-userUserGlobal
Low investment costs 60% 58% 64%
Ease of trading/Liquidity 43% 40% 51%
Simplicity 34% 38% 23%
Diversificationand risk management 33% 32% 36%
Flexible building blocksfor client portfolios 28% 30% 23%
Transparency 24% 21% 33%
Tax benefits 23% 28% 8%
Accessibility 17% 17% 17%
Ease of researchand understanding 8% 10% 3%
EMEA
57%
34%
43%
28%
35%
20%
20%
29%
8%
United States
61%
39%
31%
35%
27%
28%
32%
8%
13%
Latin America
53%
68%
33%
48%
20%
18%
10%
13%
0%
Asia Pacific
73%
53%
23%
28%
20%
33%
20%
10%
5%
TOP
3TO
P 3
% Multiple answers allowed
24 | GLOBAL ETF STUDY 2020
LARGER INVESTORS MORE LIKELY TO PRIORITISE LOW COST AS AN ETF ATTRIBUTE
• The largest investors place more emphasis on low investment costs, ahead of other ETF attributes, although ease of trading and simplicity also matter to them.
• Investors with less than $1bn AUM are more likely to use ETFs for diversification and risk management and simplicity is less important to them.
J.P. MORGAN ASSET MANAGEMENT | 25
Low investment costs
Ease of trading/Liquidity
Diversificationand risk management
Flexible building blocksfor client portfolios
Simplicity
Transparency
Tax benefits
Accessibility
Ease of researchand understanding
Other
60%
43%
34%
33%
28%
24%
23%
17%
8%
1% 1% 0% 2%
55%
45%
19%
47%
18%
47%
35%
26%
13%
14%
58%
41%
40%
30%
18%
18%
37%
22%
19%
2%
65%
43%
38%
27%
24%
25%
23%
18%
11%
Global Less than $1 billion $1 billion to $20 billion $20 billion or more
Q5. What do you see as the most important attributes of ETF products and strategies?
% Multiple answers allowed
26 | GLOBAL ETF STUDY 2020
LIQUIDITY IN A MAJOR BEAR MARKET IS SEEN AS THE BIGGEST ETF RISK
• Just as liquidity is seen as a key attribute, it is also a source of risk for ETFs, particularly by non-ETF investors. Market distortion is the next biggest obstacle or risk overall. Tax, tracking error, regulation and trading costs also crop up as significant risks in different regions.
J.P. MORGAN ASSET MANAGEMENT | 27
Liquidity issues undermajor bear market
Market distortion
Tracking error
Regulation restrictions
Market fragmentation
Taxation issues
Trading costs
Non-userUserGlobal
58%
46%
36%
34%
33%
26%
26%
54%
47%
35%
33%
32%
29%
27%
72%
43%
40%
39%
33%
17%
20%
EMEA
59%
42%
30%
36%
36%
27%
37%
United States
56%
48%
45%
32%
36%
23%
16%
Latin America
65%
55%
30%
38%
25%
13%
15%
Asia Pacific
53%
40%
33%
35%
20%
50%
33%
Q6. And what do you see as the biggest obstacles/risks of investing in ETFs?
% Multiple answers allowed
28 | GLOBAL ETF STUDY 2020
LIQUIDITY AND MARKET DISTORTION REMAIN AS THE TOP TWO RISKS
• Comparing data from last year’s Global ETF Study 2019 to 2020, giving insights to the factors affecting investing in ETFs.
• Liquidity remains the biggest potential risk for ETF investing, followed by market distortion with a narrower gap between them.
• Tracking error and other issues have overtaken taxation issues as a risk with ETF investing.
J.P. MORGAN ASSET MANAGEMENT | 29
Q6. And what do you see as the biggest obstacles/risks of investing in ETFs? (2020, Multiple answers allowed)
2019 Q. What do you see as the biggest threats/risks of investing in ETFs? (2019, Multiple answers allowed)
2019, Multiple answers allowed2020, Multiple answers allowed
Liquidity issues undermajor bear market
Market distortion
Tracking error
Regulation restrictions
Market fragmentation
Taxation issues
Trading costs
Global – 2020
58%
46%
36%
34%
33%
26%
26%
Liquidity issues undermajor bear market
Market distortion
Taxation issues
Regulation restrictions
Market fragmentation
Global – 2019
67%
39%
23%
17%
15%
Liquidity issues undermajor bear market
Market distortion
Tracking error
Regulation restrictions
Market fragmentation
Taxation issues
Trading costs
Global – 2020
58%
46%
36%
34%
33%
26%
26%
Liquidity issues undermajor bear market
Market distortion
Taxation issues
Regulation restrictions
Market fragmentation
Global – 2019
67%
39%
23%
17%
15%
J.P. MORGAN ASSET MANAGEMENT | 31
3. Active ETFs
32 | GLOBAL ETF STUDY 2020
ACTIVE ETFS ARE SEEN AS ADDING MORE TARGETED OR SPECIFIC GOALS TO ETF USE
• Active ETFs are seen as most suitable for specific investment criteria or outcomes, ahead of other strategies. This enables investors to combine ETF advantages with specific goals, such as ESG investing. Adding alpha is cited by respondents in Asia Pacific.
J.P. MORGAN ASSET MANAGEMENT | 33
Gaining exposure to specificinvestment criteria
(e.g. ESG)
Targeting specific investmentoutcomes/objectives
Optimizing tacticalallocation at di�erent times
Increasing portfoliodiversification
Adding alpha to the portfolio
Building out the strategic coreof the portfolio
Mitigating the limitationsof market-cap weighted indexing
Risk management strategies
Global
58%
51%
42%
37%
37%
30%
24%
21%
Global Asia Pacific
48%
60%
15%
18%
58%
33%
38%
33%
Latin America
75%
45%
63%
23%
38%
33%
25%
0%
Non-user
51%
45%
47%
34%
36%
29%
22%
37%
User
60%
53%
41%
38%
38%
30%
25%
16%
EMEA
60%
45%
43%
42%
31%
25%
27%
28%
United States
53%
56%
44%
45%
37%
30%
15%
21%
TOP
3
Q7. Which of the following strategies would you say Active ETFs are most suitable for? Please rank 3 options in order of importance
% Rank 1 + Rank 2 + Rank 3
34 | GLOBAL ETF STUDY 2020
THREE WAYS THAT INVESTOR AUM AFFECTS THEIR VIEWS ON USING ACTIVE ETFS
• Three findings related to investor AUM: larger investors are more likely to see active ETFs as suitable for ESG and adding alpha to portfolios, while smaller investors are more likely to see active ETFs as good tools to increase portfolio diversification.
J.P. MORGAN ASSET MANAGEMENT | 35
Q7. Which of the following strategies would you say Active ETFs are most suitable for? Please rank 3 options in order of importance
% Rank 1 + Rank 2 + Rank 3
Gaining exposure to specificinvestment criteria (e.g. ESG)
Targeting specific investmentoutcomes/objectives
Optimizing tactical allocationat di�erent times
Building out the strategiccore of the portfolio
Adding alpha to the portfolio
Increasing portfolio diversification
Mitigating the limitationsof market-cap weighted indexing
Risk management strategies
58%
51%
42%
37%
37%
30%
24%
21%
44%
55%
41%
44%
29%
26%
36%
26%
59%
50%
45%
42%
39%
32%
15%
19%
66%
49%
41%
28%
40%
29%
26%
21%
Global Less than $1 billion $1 billion to $20 billion $20 billion or more
36 | GLOBAL ETF STUDY 2020
TRACK RECORD IS THE TOP DRIVER WHEN CHOOSING AN ACTIVE ETF PROVIDER
• ETF performance is largely seen as the most important driver in the choice of an active ETF provider by 81% of respondents globally. Investment philosophy is seen as a particularly important driver in the US (69%). Trading expertise is highly appealing in all regions (56% overall), but especially Latin America (68%).
J.P. MORGAN ASSET MANAGEMENT | 37
Q8. What do you think are the most important drivers when choosing an Active ETFs provider? Please rank 3 options in order of importance
% Rank 1 + Rank 2 + Rank 3
Brand
Market share
Client support
ESG approach
Track record
Investment philosophy
Trading expertise (dedicatedteam, high-tech platform etc.)
Global
30
29
25
21
81
57
56
User
35
29
22
21
81
59
53
Non-user
14
32
36
22
84
49
63
Asia Pacific
25
22
19
59
78
44
53
Latin America
20
58
28
8
80
40
68
United States
39
25
26
10
79
69
51
EMEA
25
26
25
27
85
53
57
38 | GLOBAL ETF STUDY 2020
TOP DRIVERS WHEN CHOOSING AN ACTIVE ETF PROVIDER BY DIFFERENT TYPES OF INVESTOR
• Investment philosophy is particularly important in active ETF selection for insurers and independent adviser/brokers, while trading expertise stands out for fund-of-funds and Discretionary Fund Managers. Market share and brand are more important for private banks and bank trusts than other organisations.
J.P. MORGAN ASSET MANAGEMENT | 39
Q8. What do you think are the most important drivers when choosing an Active ETFs provider? Please rank 3 options in order of importance
% Rank 1 + Rank 2 + Rank 3
Track record
Investment philosophy
Trading expertise (dedicated team,high-tech platform etc.)
Client support
Market share
Brand
ESG approach
Other
Global Fund of Funds Private Bank/Bank Trust
DiscretionaryFund Manager
InsuranceCompany
IndependentWealth/
Asset Manager
InvestmentPlatform Provider
for DC plan
IndependentAdvisor/Broker
81%
57%
56%
30%
29%
25%
21%
1%
82%
36%
73%
18%
36%
18%
36%
0%
82%
45%
74%
14%
23%
26%
33%
3%
84%
57%
44%
38%
30%
27%
20%
0%
79%
79%
53%
26%
5%
37%
21%
0%
100%
56%
56%
22%
22%
11%
33%
0%
82%
77%
64%
26%
21%
21%
9%
0%
73%
42%
35%
51%
55%
24%
18%
4%
40 | GLOBAL ETF STUDY 2020
WHILE COST IS CRITICAL , OTHER FACTORS PLAY A ROLE IN ACTIVE ETF PRODUCT SELECTION
• The vast majority of respondents globally (73%) identify the full cost of investing as the top driver when choosing an active ETF product. More than half (59%) also point to the ETF structure (59%) and ETF trading liquidity (57%).
• One interesting regional variation is that brand and ESG score are relatively much more important to the Asia Pacific region (and also to non-ETF investors).
J.P. MORGAN ASSET MANAGEMENT | 41
Q9. What do you think are the most important drivers when choosing an Active ETFs product? Please rank 3 options in order of importance
% Rank 1 + Rank 2 + Rank 3
Full cost of investing (total expense ratio,transaction costs, taxes etc.)
ETF structure (underlying securities,asset classes, etc.)
ETF trading liquidity
Track record
Tracking error
Brand
ESG score
Other
73%
59%
57%
52%
23%
22%
13%
1%
GlobalGlobal
0%
78%
33%
38%
48%
13%
45%
48%
0%
Asia Pacific
0%
75%
63%
75%
55%
13%
20%
0%
0%
Latin America
0%
75%
57%
53%
38%
22%
28%
26%
0%
Non-user
1%
73%
60%
58%
56%
23%
20%
10%
1%
User
1%
77%
67%
54%
49%
20%
18%
15%
1%
EMEA
1%
68%
59%
62%
56%
32%
18%
5%
1%
United States
42 | GLOBAL ETF STUDY 2020
TOP DRIVERS WHEN CHOOSING AN ACTIVE ETF PRODUCT FOR DIFFERENT INVESTOR TYPES
• Unlike every other organisation, independent advisers/brokers do not put full cost first here, but see liquidity, track record and structure as more important when choosing an active ETF product.
J.P. MORGAN ASSET MANAGEMENT | 43
Q9. What do you think are the most important drivers when choosing an Active ETF product? Please rank 3 options in order of importance
% Rank 1 + Rank 2 + Rank 3
ETF structure (underlying securities,asset classes, etc.)
ETF trading liquidity
Track record
Tracking error
Brand
ESG score
Full cost of investing (total expenseratio, transaction costs, taxes etc.)
73%
59%
57%
52%
23%
22%
13%
90%
47%
37%
74%
21%
26%
5%
65%
69%
64%
55%
26%
20%
0%
79%
68%
53%
48%
21%
11%
21%
100%
33%
33%
56%
11%
33%
33%
56%
61%
67%
65%
27%
14%
9%
78%
52%
69%
32%
22%
22%
26%
81%
61%
43%
55%
20%
30%
12%
Global Fund of Funds Private Bank/Bank Trust
DiscretionaryFund Manager
InsuranceCompany
IndependentWealth/
Asset Manager
InvestmentPlatform Provider
for DC plan
IndependentAdvisor/Broker
44 | GLOBAL ETF STUDY 2020
SIZE MATTERS MOST WHEN INVESTORS LOOK AT AN ETF’S UNDERLYING INDEX
• Three-quarters of global respondents say size/market cap is the most important driver when looking at an ETF’s underlying index. This is particularly true among LatAm and US respondents (85% and 80%).
• Notable regional differences include greater emphasis on popularity/recognition among Asia Pacific respondents and less emphasis on track record by LatAm respondents.
J.P. MORGAN ASSET MANAGEMENT | 45
Q10. What do you think are the most important drivers when looking at the underlying index of an ETF? Please rank 3 options in order of importance
% Rank 1 + Rank 2 + Rank 3
Non-userUserGlobal
Size/Market cap
Weighting method
Track record
Popularity/Recognition
ESG criteria
Age
Asia Pacific
50%
53%
63%
75%
35%
25%
Latin America
85%
90%
25%
63%
0%
38%
United States
80%
81%
69%
41%
13%
16%
EMEA
75%
51%
65%
61%
31%
16%
75%
67%
61%
55%
21%
20%
74%
68%
61%
60%
20%
18%
79%
63%
64%
41%
25%
28%
J.P. MORGAN ASSET MANAGEMENT | 47
4. Fixed Income ETFs
48 | GLOBAL ETF STUDY 2020
FIXED INCOME ETFS CAN HELP INVESTORS REDUCE COSTS AND CONTROL BOND EXPOSURE
• While fixed income ETFs are widely seen as reducing fixed income investing costs (54%), simplifying, adjusting and tactical exposure are also important for investors.
• US and Asia Pacific investors are more likely to mention portfolio risk rebalancing than the other regions, while access to specific sectors is important for EMEA investors.
J.P. MORGAN ASSET MANAGEMENT | 49
Reducing the cost of fixedincome investing
Tactical exposure and adjustments
Simplifying their bond exposure
Cash and liquidity management
Gaining access to specificsectors/markets
Portfolio risk rebalancing
Core long-term investment holdings
Trading tool
Hedging
54%
42%
41%
40%
39%
35%
24%
13%
12%
Global
34%
66%
68%
37%
21%
45%
13%
0%
16%
Asia Pacific
58%
25%
15%
75%
58%
28%
0%
15%
28%
Latin America
51%
26%
46%
37%
31%
48%
43%
10%
7%
United States
62%
56%
37%
32%
47%
20%
15%
20%
10%
EMEA
57%
42%
43%
38%
44%
29%
26%
12%
8%
User
42%
41%
37%
46%
23%
54%
17%
17%
24%
Non-user
Q13. Which of the following would you say fixed income ETFs are most suitable for? Please rank 5 options in order of importance
% Rank 1 + Rank 2 + Rank 3
50 | GLOBAL ETF STUDY 2020
FIXED INCOME ETF GROWTH TO BE SPURRED BY MORE PRODUCTS AND COST EFFICIENCY
• In the US, expanding the product range is the biggest factor for market growth by some way, with other factors much more bunched together.
• Adding active management to fixed income ETFs is seen as boosting market growth most in Latin America, while cost efficiency matters most in Asia Pacific, the EMEA region and also with non-ETF investors.
J.P. MORGAN ASSET MANAGEMENT | 51
Q14. What do you think will help spur further market growth of fixed income ETFs? Please rank 3 options in order of importance
% Rank 1 + Rank 2 + Rank 3
Expanding range of ETF products(duration, diversification,
hedging etc.)
Increasing cost-e�ciency
More granular accessibility todiverse segments of the bond market
More accurate replication(minimising tracking error)
More customised/specialisedproducts and strategies
Improving application of activemanagement to fixed income ETFs
Other
Global
69%
62%
48%
43%
41%
37%
1%
Latin America
68%
59%
18%
82%
71%
3%
0%
Asia Pacific
53%
79%
61%
45%
24%
39%
0%
United States
79%
49%
48%
47%
35%
39%
2%
EMEA
65%
69%
51%
26%
44%
44%
1%
Non-user
60%
71%
41%
49%
43%
34%
1%
User
72%
59%
50%
41%
41%
38%
1%
52 | GLOBAL ETF STUDY 2020
CREDIT AND EM DEBT SEEN AS ATTRACTIVE SECTORS FOR FIXED INCOME ETFS
• Generally, credit (corporate and high yield bonds) and emerging market bonds are seen as the most attractive sectors in the next 2-3 years, ahead of ESG bonds and other sectors. However, this varies by region with much less interest in ESG/green bonds in the US, for example.
J.P. MORGAN ASSET MANAGEMENT | 53
Global User Non-user
Corporate bonds
High yield bonds
Emerging market bonds
ESG/Green bonds
Ultra-short bonds
Government bonds
Convertible bonds
Municipal bonds
Mortgage related
Other
46%
42%
42%
38%
28%
30%
27%
24%
23%
0%
45%
46%
41%
38%
27%
28%
25%
27%
23%
0%
49%
28%
44%
39%
31%
38%
34%
15%
21%
0%
Latin America
53%
33%
50%
48%
25%
28%
33%
13%
20%
0%
Asia Pacific
32%
40%
37%
63%
58%
18%
8%
16%
29%
0%T
EMEA
51%
49%
39%
40%
20%
35%
36%
17%
13%
0%
United States
44%
40%
42%
24%
28%
29%
23%
38%
32%
1%
Q15. When considering investing in fixed income ETFs, which of the following sectors look most attractive to you over the next 2-3 years? Please rank 5 options in order of importance
% Rank 1 + Rank 2 + Rank 3
J.P. MORGAN ASSET MANAGEMENT | 55
KEY TAKE OUTS
• J.P. Morgan Asset Management’s Global ETF Study was commissioned as part of our long-term commitment to help our clients build even more robust portfolios.
• The study is among the most comprehensive of its kind. We surveyed 320 professional investors around the world, with average assets under management of $31.8 billion, to gain a detailed view of ETF allocations, ETF trading and the latest ETF investment trends.
• The respondents represent a broad range of investors, from independent wealth managers and discretionary fund managers through to private banks, fund of funds and insurance companies, providing a detailed snapshot of global investors’ attitudes towards ETFs.
• Three quarters of respondents are already ETF investors, rising to 84% in the US and 80% in Europe, the Middle East and Africa (EMEA). ETF market penetration among the professional investors surveyed is at 58% in Latin America and 63% in Asia Pacific, suggesting potential for growth in these regions.
56 | GLOBAL ETF STUDY 2019
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METHODOLOGYThe Global ETF Study 2020 took place in late March to early April 2020, with 320 investors in the United States, EMEA, Asia Pacific and Latin America taking part. The respondents were fund selectors at a range of financial institutions of varying sizes. The research was commissioned by J.P. Morgan Asset Management and carried out by CoreData Research.