European institutional investors, private bankers and asset managers are widely using exchange traded funds according to recent research by ...

European institutional investors, private bankers and asset managers are widely using exchange traded funds according to recent research by the Nice-based EDHEC Risk and Asset Management Research Centre. And amongst those using equity ETFs, 92 per cent were satisfied with the experience. With 45 per cent of responses to EDHEC’s recent ETF survey, the most distinct reason for satisfaction was the reliability of the tracking error, whilst 23 per cent were satisfied with the good performance of ETFs, 21 per cent were pleased with the level of liquidity, and only 4 per cent cited the reduced expenses of ETFs. More than half of the respondents are current or planned users of ETFs in equity investments (61 per cent), but this is true for only a quarter of respondents for bond investments. According to EDHEC this is surprising given that more efficient bond benchmarks (or core portfolios) can be constructed using an optimal allocation between subcategories and that alpha-generating strategies (or satellite portfolios) have been shown to be achievable using tactical allocation between such indices. Satisfaction with bond ETFs was found to be considerably lower compared to equity ETFs. Among the respondents who are users of government bond ETFs, 80 per cent found ETFs were satisfactory with 35 per cent naming the reliability of the tracking error, 30 per cent the reduction in expenses and 15 per cent the good level of liquidity. But there remained 5 per cent of users who were dissatisfied with the poor level of liquidity of ETFs, while another 15 per cent were not content for different reasons.