ETF investors talk shop
28 March 2012 Europe
Image: Shutterstock
The counterparty risk of physical ETFs has been underestimated, and regulated and unregulated ETFs need to be differentiated more clearly, were just two of the findings from the European ETF survey.
The survey, which was commissioned by the EDHEC-Risk Institute asked 174 European ETF investors questions about their industry.
Their findings include:
• Industry communication on the risks of ETFs has led to the counterparty risk of physical ETFs being underestimated. As a result, investors think that full physical replication is less risky than synthetic replication in terms of counterparty risk. Even though almost all physical replication ETFs engage in securities lending, investors fail to appreciate the risk of this activity.
• Investors acknowledge that the current education on the differences between highly regulated ETFs and largely unregulated ETPs needs to improve in order to avoid confusion.
• There has been increasing demand for ETFs based on new forms of indices, from 29% to 39% over the past year, which indicates growing interest in alternative-weighted indices.
• ETFs remain very popular for passive investment. In terms of future use, a majority of respondents (63%) indicate that they intend to increase their allocation to ETFs in the future.
The survey, which was commissioned by the EDHEC-Risk Institute asked 174 European ETF investors questions about their industry.
Their findings include:
• Industry communication on the risks of ETFs has led to the counterparty risk of physical ETFs being underestimated. As a result, investors think that full physical replication is less risky than synthetic replication in terms of counterparty risk. Even though almost all physical replication ETFs engage in securities lending, investors fail to appreciate the risk of this activity.
• Investors acknowledge that the current education on the differences between highly regulated ETFs and largely unregulated ETPs needs to improve in order to avoid confusion.
• There has been increasing demand for ETFs based on new forms of indices, from 29% to 39% over the past year, which indicates growing interest in alternative-weighted indices.
• ETFs remain very popular for passive investment. In terms of future use, a majority of respondents (63%) indicate that they intend to increase their allocation to ETFs in the future.
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