ETF growth surges on the back of European volatility, social conscience

Research from Greenwich associates finds ETF allocations grew by 50% in Europe last year, with further growth expected in 2019.

Allocations in exchange-traded funds (ETFs) by institutional firms grew by 50% in Europe last year, according to research from Greenwich Associates.

A survey of 127 institutional investors found that ETFs now account for 15% of total assets among that group, despite increased market volatility throughout Europe over the last year.

“Our data suggests that last year’s robust growth in ETF investments by European institutions occurred not in spite of the turbulent conditions, but because of them,” commented report author and managing director at Greenwich Associates, Andrew McCollum.

The research found that European firms repositioning their portfolios to prepare for expected rate hikes from the European Central Bank, alongside a number of geopolitical risks, focused on ETF investing due to speed of execution, single-trade diversification and liquidity making them versatile tools for portfolio construction.

The growing importance of ESG (environmental, social and governance) factors were also highlighted as a driver of ETF growth, as 44% of survey respondents indicated they are using the products to address and meet their ESG commitments.

“In a year that saw the return of broad market volatility, investors turned to ETFs to capture alpha, manage risk, invest sustainably, and tap liquidity in tighter financial conditions,” says Brett Pybus, head of iShares EMEA Investment and Product Strategy team at BlackRock, the sponsor of the research.

“Looking forward, a revolution in the way portfolios are built in Europe will feed the momentum in ETF adoption we’ve seen in recent years. Investor sensitivity to cost, transformative regulation, the modernization of the fixed-income ecosystem and greater access to data and analysis tools are all setting the stage for future growth.”

Greenwich Associates stated that ETF growth is expected to continue throughout 2019, with nearly 40% of ETF investors surveyed planning to increase their allocations in the next 12 months.