Ninety-five percent of financial advisors, institutional investors and fund managers in a new survey say they will increase their exchange-traded fund allocations over the next 12 months, up from 82% in the 2024 survey, Brown Brothers Harriman reported Monday.
Nearly 30% of investors said they plan to re-allocate from both actively managed and index-based mutual funds to ETFs, while 33% said they would shift their passive allocation to active ETFs over the next 12 months.
“ETF issuers are innovating to meet the sophisticated investment demands of today’s investor,” Tim Huver, managing director on the ETF servicing team at BBH, said in a statement. “Investors are seeking the unique features of ETFs to access an expanded suite of product solutions and talented managers to navigate this market uncertainty.”
Wakefield Research conducted the survey between Jan. 24 and Feb. 3 among 100 ETF investors in the United States, 125 in Europe and 100 in Greater China (the mainland, Hong Kong and Taiwan), 51% of which manage more than $1 billion in assets.
Other Key Findings
A quarter of investors reported that they use active ETFs to access institutional asset managers or strategies, and one-fifth do so because of the greater transparency they provide. Investors also like ETFs’ tax efficiency as compared to mutual funds.
Twenty-six percent of investors in the survey expect alternative assets to be a growing theme in 2025, with 38% of U.S. investors predicting heightened interest in alternatives.
Seventy-one percent of allocators expect to increase their investment in cryptocurrency-focused ETFs over the next 12 months, including 80% of Asian and 76% of American investors, but only 59% of European ones.
Thirty-one percent of firms said they are using artificial-intelligence-driven tools to make investment decisions, with another 30% deploying AI for market analysis or research purposes. A quarter of respondents indicated that their firms rely on financial advisors or fund managers who use AI in their strategies.
As ETFs have moved beyond core beta strategies, cost featured less prominently for investors in the new survey. American respondents ranked expense ratio last in relative importance across all of the ETF attributes that researchers compared. BBH said this suggests that investors recognize the holistic benefits that ETFs can deliver beyond lower costs.
In addition, only 12% of global respondents said they invest in active ETFs because of lower costs when compared with their mutual fund counterparts; rather, their top motivation for active ETF allocations is access to institutional managers or strategies.
About a third of investors in the United States and Asia said they expect equities to deliver the best performance over the next 12 months, while 27% of European investors are looking to fixed income for outperformance.
Asked what they consider the most important selling points for an ETF, American investors pointed to tracking error/divergence, while European investors identified the brand’s reputation and Asian investors highlighted tax efficiency.
The survey found that market size matters. Eighty-one percent of investors said they would consider investing in an ETF only if it had more than $50 million in assets under management. Of those, 51% said they require ETFs to have a minimum of more than $100 million, highlighting, BBH said, the draw of larger ETFs to avoid concentration risk.
Three-quarters of investors said their ETF allocation has increased over the previous five years — by more than 25% for a fifth of them.
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