Key Findings

• ETF allocation keeps pace: ETFs saw global inflows of $856 billion in 2022, the second highest total ever. Interestingly, the number of investors who plan to increase their ETF allocations in 2023 dropped 23% YoY, but overall allocations remain strong with 89% planning to maintain or increase.
• Appetite for fixed income is growing: 62% of investors say they are extremely or very interested in fixed income, while 40% expect to direct even more of their portfolios toward short duration fixed income allocations.
• Commodity ETFs boom as investors seek diversification: 69% plan to maintain or increase allocations to commodity ETFs. This is not surprising given that seven out of the top 10 best performing ETFs in 2022 were commodity products.
• Active ETFs on the rise: 82% of investors plan to increase or maintain their exposures to active ETFs this year as conversions from mutual funds into actively managed ETFs intensifies. 92% of investors bought an active ETF in the last 12 months with 46% allocating from index mutual funds and 42% allocating from active mutual funds.
• Semi-transparent structures gaining more visibility: Investor interest in semi-transparent active ETFs is reflected in the growing awareness of these ETF structures, which are still in their nascent phase. 80% of investors know what these structures are, and 70% of investors say they will or may buy one.
• Investors are favoring alternative and managed risk strategies: To enhance diversification and manage risk in volatile markets, 59% of investors favor defined outcome ETFs, which cap their exposure to broad equity markets and offer a downside protection. 67% of investors favor strategies based on specific factors of return such as value, growth or momentum and around 70% of investors favor managed risk strategies.
• ESG ETFs are becoming a leading source of demand: Over the last five years, AUM has grown at a phenomenal 40% CAGR, with 43 consecutive months of inflows, to reach $403 billion invested in ESG ETFs at the end of November 2022.3 53% of respondents are planning to add ESG exposures this year.
• Crypto ETF demand persists amid market chaos: Despite a tumultuous market and value destruction, a quarter of respondents expect to allocate more of their portfolios to ETFs with cryptocurrency related exposure, compared to 33% in 2022. Institutional investors are particularly keen, with 74% saying they are extremely/very interested in this strategy. 48% of investors still plan to add cryptocurrency and digital asset-themed ETFs.
• Investors prefer virtual to in-person meetings: 62% of investors prefer to engage digitally with sponsors, and 53% prefer having digital content and insights pushed to them. Enhancing digital engagement strategies will be key for industry participants going forward.

Big Changes

• ETF allocations strong, but with nuances: 89% of investors plan to maintain (28%) or increase (61%) their allocations to ETFs over the next 12 months. Last year, 84% planned to increase allocations, indicating a 23% dip year-over-year, but overall, ETF allocations remain strong and promising.
• Shifts in how investors select ETFs: When looking at the most important criteria for selecting ETFs: in the US, expense ratios replace ETF issuer brand; in Europe, tax efficiency led the way; and investors in Greater China care most about the index this year, which is up from 6th place last year.
• Investor use of robo-advisors has tripled: Use of robo-advisors to access ETF model portfolios almost tripled year-over-year, from 10% to 29%, as investors gained more comfort with utilizing these typically lower priced advisory solutions which tend to use ETFs as core instruments in their asset allocations.
• Volatility sparks demand for non-correlated assets: To manage risk and reduce the impact of volatility, 69% of investors plan to maintain or increase allocations to commodity ETFs, while 76% plan to maintain or increase allocations to buffer/market neutral strategies.