The march of ETFs

Institutional investors have shown high preference for Exchange Traded Funds (ETFs) and Fund of Funds (FoF) over other category of mutual fund schemes in the past three-four years. Of the total investments in ETFs and FoFs, at the end of August 2019, close to 93% has come from institutional investors and a meagre 7% from individual investors. Institutional investors include banks, insurance companies, Employees’ Provident Fund Organisation (EPFO) and other domestic institutions. As well as lower charges, at times when it is difficult to identify alpha or returns higher than the benchmark in active funds due to slowdown, investment in ETFs becomes a prudent choice.

The European ETF retail market has long lagged its US counterpart. While there are no solid statistics on ETFs by client type, the consensus among industry players is that more than 80% of ETF assets in Europe are in the hands of private banks, wealth managers, pension funds, hedge funds, and other types of institutional investor. While the European retail investor community is relatively untapped by ETF providers, most agree they could play a key role in the growth of the market looking forward. Commentators think the major barriers to retail uptake in Europe have been education and technology. Both of these are slowly being broken down.

 

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