Strong investor preference for physically-replicated ETFs prevails, latest Morningstar ETF survey reveals

2 May 2012

Morningstar has released the results of its fourth online survey of UK investors into the appetite, understanding and use of exchange-traded funds, with a strong and continuing investor preference for physical-backed ETFs again coming through. 181 investors participated in the survey.

Key findings:

  • More than half of all respondents already invest via ETFs, with the remainder still familiarising themselves with these new vehicles;
  • 89% of survey participants prefer physically-replicated funds over synthetic-replication funds;
  • Of respondents who currently invest in ETFs, the majority own them in an amount less than 20% of the value of their overall portfolio;
  • ETF trading remains infrequent with most participants—74% having a buy-and-hold approach;
  • The low costs of ETFs continues to resonate, with 89% of current ETF investors and 96% of prospective users citing ETFs’ low costs as being either a “very important” or “important” attribute;
  • A majority of both current and prospective users attribute some level of importance to other key ETF attributes including intraday liquidity, their stable/passive portfolios, and the fact that they facilitate access to alternative asset classes.

Ben Johnson, Morningstar’s director of European ETF research, comments:

“Despite the efforts made by providers of synthetic replication ETFs to improve the level of transparency and investor protection in their product lineups, respondents remain wary of swap-based ETFs. This is despite the ongoing conversation around counterparty risk recently shifting focus to highlight those risks arising from securities lending within physical replication ETFs. Clearly, despite the many benefits around low cost and ease of tradability, there is still some way to go in providing investors will all the information and transparency they need to feel comfortable with ETFs as a larger component in their portfolio.”

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