Passive portfolios tracking UK and US equity markets as well as commodities such as gold are among the most popular exchange-traded funds (ETFs) with financial advisers, research by FE Trustnet shows.
The closely-watched Bank of America Merrill Lynch Global Fund Manager Survey recently introduced a new question that asked asset allocators how they are using ETFs within their portfolios.
The latest edition of the survey, which covered positioning at the start of May 2018, showed that 53 per cent of professional asset allocators across the globe are now using ETFs, with the average allocation within a portfolio standing at around 20 per cent of assets.
Which asset class are you exposed to most through ETFs?
Source: Bank of America Merrill Lynch Global Fund Manager Survey
As the chart above shows, professional investors are most often using ETFs to take exposure to equities, with 77 per cent of investors having them in their portfolios for broad stock market allocations. Some 8 per cent hold ETFs for corporate bond exposure while 5 per cent of allocate to government bonds.
With this in mind, we used the FE Analytics Market Intel Tool to discover which exchange-traded funds are being most heavily researched by financial advisers, wealth managers, multi-managers and other professional investors in the UK.
We found that 65.2 per cent of the 500 most researched ETFs on FE Analytics were equity products, while 13.8 per cent tracking fixed income indices and 11 per cent offer exposure to commodities.
The most popular global ETF sector was Commodity & Energy (which accounted for 11 per cent of the top 500 products’ overall research share), followed by Equity – USA (10.6 per cent), Equity – International (9.6 per cent), Equity – Europe ex UK (7.2 per cent) and Equity – UK (6.6 per cent).
When we look at the individual ETFs that have been most heavily researched by FE Analytics users, iShares Core FTSE 100 UCITS ETF Inc comes in first place. As its name suggests, the £5.9bn product tracks the FTSE 100 index and has posted a 124.67 per cent return since its launch in April 2000, compared with a 137.97 per cent gain in the benchmark.
The ETF is a member of the FE Invest team’s Approved List of preferred passive funds. The team said: “The sheer power behind BlackRock being the largest global asset manager is one of the key features of the index funds and ETFs on offer by BlackRock and its iShares subsidiary respectively.
“Their popularity has grown immensely alongside passive investment as a whole, with iShares now being the world’s largest ETF provider.”
Source: FE Analytics
The above table, which shows the 30 most researched ETFs over the past year, hints at the dominance of BlackRock subsidiary iShares in the UK market. Indeed, 177 of the 500 most-researched ETFs on FE Analytics are run by iShares; the second most popular group is Xtrackers ETF, but only 50 of its products appear in the top 500.
The table also shows how the vehicles are being used to access gold as the $6.2bn ETFS Physical Gold and $3.2bn iShares Physical Gold ETC products holding second and third place respectively. Both products have made just under 100 per cent over the past 10 years.
In a recent note, ETF Securities highlighted that gold products have benefitted from a recent uptick in interest: “Gold continues to attract inflows in an environment of heightened political risk. The political calendar is busy. A meeting between Donald Trump and Kim Jong-Un is on the radar for the coming month and there are many risks around the nuclear powers butting heads rather than developing a peace plan.”
Fixed interest ETFs have also been heavily researched by the professional investors on FE Analytics. iShares £ Index-Linked Gilts UCITS ETF, iShares Core UK Gilts UCITS ETF and iShares Core £ Corporate Bond UCITS ETF are among the most popular as are a number of short-dated strategies, reflecting the possibility that interest rates will rise.
As would be expected, research has also looked at how to gain exposure to US equities with the iShares Core S&P 500 - B UCITS ETF, Vanguard S&P 500 UCITS ETF and iShares S&P 500 UCITS ETF Inc being the most popular.
The findings of the Bank of America Merrill Lynch Global Fund Manager Survey reflect why the ‘vanilla’ ETFs mentioned in this article are the most popular as two-thirds of investors use the products to simply track broad market indices.
Just 12 per cent use them for smart beta while only 6 per cent are interested in ETFs for areas such as thematic or environmental, social & governance investing.
Which type of ETF strategies are investors the most interested in?
Source: Bank of America Merrill Lynch Global Fund Manager Survey
The research also found that more than half of asset allocators have 20 per cent or less of their portfolios in ETFs and only 9 per cent have more than 41 per cent.
When asked what would be the reason to add more to their ETF exposure, investors’ most popular responses were to access otherwise difficult parts of the market, to take more broad market exposure or for tactical position to manage macro/political risk.