A majority (51%) of investors have replaced active mutual funds with ETFs in their portfolios, citing liquidity and total cost of ownership as the most important criteria when selecting the passive products, according to the inaugural TrackInsight Global ETF survey.
A further 82% use exchange-traded funds, which celebrate their 20th anniversary in Europe this year, to replace direct investing in equities, but 87% of respondents said they have never used ETFs to take a short position.
The debut survey from TrackInsight spoke with more than 300 professional investors from 17 countries across EMEA, the Americas and Asia Pacific with an exposure of $277bn to ETF assets, roughly 5% of the global total.
Respondents included asset managers, financial advisers, investment consultants, family offices, insurance firms, pension funds and banks, with over half (52%) investing more than a fifth of their portfolios in ETFs.
Equity ETFs remain the most utilised and a majority of respondents have invested in global (68%), developed markets (66%) and emerging markets (53%) through ETFs, while fixed income has risen sharply to become the second-largest asset class, collecting 42% of net inflows over the past two years.
This figure is set to rise as 64% of investors surveyed intend to increase their exposure to fixed income ETFs by more than 5%, with 21% intending to boost this by more than a fifth.
Developed markets are preferred over emerging markets in fixed income, with developed government debt (38%), investment grade credit (36%) and high yield credit (31%) all featuring before their emerging market counterparts, at 26%, 16% and 11% respectively.
Two-fifths (40%) of respondents are exposed to gold through either ETFs or ETCs (exchange-traded commodities), with most considering it a 'very convenient and efficient way to gain exposure to the safe-haven precious metal", while 24% use the 'wrapper' to access real estate equities and 16% invest in cash or cash equivalents through ETFs.
Despite the survey taking part in early May during "unprecedented market conditions", investors still "strongly believe ETFs deliver on their promise", with only 4% of investors saying they plan to decrease their exposure to ETFs, while 55% anticipated increasing their exposure.
ESG-linked, thematic or risk-based products are the three themes topping the list of ETFs investors would "most like to see", while smart beta fixed income, commodity and currency were also among those suggested.
A lack of consistency (68%) and transparency (65%) are the biggest challenges when it comes to investing in ESG ETFs, but with 86% of respondents expressing an intention to increase their exposure, the asset class is set to continue its strong growth.