ESG, thematic and active ETFs are predicted to see the strongest growth over the coming two to three years as passive ETFs’ majority slims, according to the Global ETF Study from JP Morgan Asset Management (JPMAM).
Globally, 59% of respondents anticipate growth in the ESG ETF market, 42% see strong growth in thematic products and 37% believe active ETFs will continue to grow over the coming years, compared to 32% predicting growth across passive ETFs.
Regionally, the US still falls shy of the rest of the world in its belief in ESG ETFs, with only 41% of respondents seeing strong growth in the space, compared with 68% in Latin America, 70% in Asia Pacific and 72% in EMEA, although it still ranked second of its top three growing ETF classes.
Of those who responded, investors with the largest assets under management (AUM) predicted these trends more aggressively, with 72% of firms with an AUM of $20bn or more expecting growth in ESG ETFs compared to 46% of firms with an AUM smaller than $1bn.
The market is set to look significantly different three years from now compared with three years prior, according to the survey, as investors who once allocated 80% of their clients' ETF portfolio to passive products anticipate only 61% in this space in the near future.
Active ETF allocation is set to grow from 12% three years ago to 21% three years from now, while smart beta is anticipated to grow from 8% to 18%.
Latin American respondents predicted the biggest shift from passive to active ETFs, followed by the US and EMEA, while Asia Pacific favours equity ETFs more than any region.
The US is still set to dominate as the largest region in client portfolios, retaining a majority (51%) of ETF portfolios globally three years from now, according to respondents, followed by emerging markets (14%), developed Europe (13%), global markets (12%), China (6%) and other developed markets (5%).
The low cost of investments remains the most important attribute of ETFs, with 60% of global respondents citing it, while ease of trading and liquidity followed second (43%) and simplicity third (34%).
Active ETFs are most suitable for gaining exposure to a specific investment criteria, according to 58% of respondents, who also cited the ability to target specific investment outcomes (51%) and optimising tactical allocation (42%) in their top three benefits of the product.
When choosing an active ETF provider track record ranks as the most important factor by far, with 81% of investors choosing it, followed by investment philosophy (57%) and trading expertise (56%).
Corporate bonds are set to be the biggest driver of fixed income ETF growth, with 46% of respondents describing the asset class as attractive, followed closely by high-yield bonds (42%) and emerging market bonds (42%), while ESG/green bonds just missed out on a top three spot (38%).
Jed Laskowitz, global head of asset management solutions at JPMAM, said: "We are seeing a significant shift in sentiment and in the way investors use ETFs in portfolios. They are exploring their options and increasingly looking to diversify their use of ETFs beyond passive strategies.
"For example, the current and expected growth in ESG ETFs and active ETFs is proof that these vehicles are likely to play a bigger role across investor portfolios."
Olivier Paquier, head of ETF distribution, EMEA, added: "ETFs are increasingly viewed as tools that can help to meet varied financial and investment objectives.
"We think ETFs will continue to be utilised as cost-efficient, flexible wrappers for a growing range of investment styles and underlying assets as the technology continues to play a role in the democratisation of investing."