The EDHEC European ETF Survey 2011

This survey has been conducted as part of the third year of the Amundi ETF "Core-Satellite and ETF Investment" research chair.

Author(s):

Felix Goltz

Head of applied research at EDHEC-Risk Institute.

Lin Tang

Senior research engineer at EDHEC Risk Institute–Asia.

EDHEC Survey The objective of this research chair at EDHEC-Risk Institute is to provide research insight into the recent development of exchange-traded funds (ETFs) and the ways they are used in core-satellite asset management. For EDHEC-Risk Institute, it is only natural to devote significant resources to this research topic; after all, both indexing and dynamic asset allocation are a main focus of our asset management research. Over the past decade, ETFs have stood out for their fast growth. Last year’s survey results suggested that the ETF market had entered a phase of increased maturity and investors were now embracing more advanced ways of trading ETFs and more innovative ETF products. This year’s results of our pan-European survey suggest that, while investors are using ETFs for more heavily for dynamic strategies and specific sub-segment exposure than in the past, the main use of ETFs remains long-term buy and hold investing into broad market indices. Investors are also moving towards applying ETFs more for portfolio optimisation as well as risk management, and continue to have a demand for ETFs mainly as index replicating products, rather than as active funds. In relation to the current issues raised by financial authorities and international organisations on the risks of ETFs, our survey also suggests that investors have a differentiated view on different replication methods. While there appear to be some misperceptions about the risks of different replication methods, it is also apparent that, depending on the objective at hand and depending on the index to be replicated, different replication mechanisms are perceived to have different types of benefits. Investors also acknowledge that the current education on the differences between highly regulated ETFs and largely unregulated ETPs needs to improve in order to avoid confusion. As part of this document, we also provide a background section with examples that show how dynamic risk budgeting strategies can be used with ETFs. In particular, this section builds on using ETFs to implement dynamic core-satellite investments to provide risk-controlled exposure to capture the value and momentum premium. We thus hope to provide some food for thought on how the liquidity of ETFs can be brought to its full benefit.

Type: EDHEC Publication
Date: le 22/03/2012
Extra information :

For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]

Research Cluster : Finance

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