With brisk growth comes great complexity and 2024 has been a year of both for Europe’s ETF industry.

Bạn đang xem: Five most important ETF research papers in 2024

Fortunately, a band of academics, asset managers and market research firms have been standing by to unpick the market’s most complicated elements and illuminate some of its darkest corners.

With that in mind, ETF Stream has done a round-up of the five most important studies and surveys on ETFs in 2024.

1. Will ETFs drive mutual funds extinct?

A regular jibe from the mutual fund industry is that ETFs provide an “illusion of liquidity” and make an unsuitable vehicle for relatively illiquid securities like corporate bonds.

However, in a paper titled Will ETFs drive mutual funds extinct?, Anna Helmke of the University of Pennsylvania makes the opposite argument.

“ETFs may be more suited for less liquid index market segments favoured by long-term investors, whereas mutual funds may be a better fit in liquid fund market segments favoured by investors with short-term liquidity needs such as money market funds,” she contended.

This is because mutual funds generally guarantee liquidity once a day whereas ETFs trade intraday. ETFs can therefore be an important tool for price discovery when trading of the underlying holdings dries up, such as during moments of stress.

Xem thêm : Sebi notifies SIF, new asset class between PMS and mutual funds with minimum investment of Rs 10 lakh

Such moments present potentially existential problems for mutual funds which, if unable to trade their constituent securities, may be unable to honour the redemptions promised to investors.

2. Index disruption: the promise and pitfalls of self-indexed ETFs

Self-indexed ETFs, which seek to replicate the performance of proprietary indices, were found by a trio of Oxford academics to charge higher fees than similar funds tracking third-party indices.

The result is surprising because side-stepping the licensing fees paid to external index providers removes a significant layer of cost.

The paper, titled Index Disruption: The Promise and Pitfalls of Self-Indexed ETFs, found conflicts of interest, not product differentiation, was the key driver of the higher fees.

Self-indexed ETF issuers with advisory arms showed substantially higher ‘self-ownership’ levels than those without, suggesting they are pushing their own high-cost products on clients in discretionary advisory accounts.

3. The role of algorithmic trading in optimising ETF execution outcomes

In its report called The Role of Algorithmic Trading in Optimising ETF Execution Outcomes, BlackRock found the rise of algorithmic trading in ETFs is helping investors to navigate the “fragmented” European ETF ecosystem.

The US giant asserted that algorithmic execution provides a potentially more efficient alternative to risk and NAV-based trading – the methods currently dominating ETF flow.

Xem thêm : Is Invesco American Franchise A (VAFAX) a Strong Mutual Fund Pick Right Now?

Relative to other methods, algorithmic orders can reduce trading costs by sourcing the best prices across venues, preserve trade anonymity and minimise the risk premium impact.

4. Not all AAA CLO ETFs are created equal

A piece from PGIM Fixed Income titled Not All AAA CLO ETFs are Created Equal argued that the risk and return profiles of CLO ETFs can differ substantially across managers – even those within the same headline credit rating.

Within the ‘AAA’ space, for example, managers may reach down the credit spectrum and select junior AAA tranches in return for a small pickup in yield.

“While both are loss remote, ‘junior’ second-pay AAA tranches have been observed to behave more like AA CLOs during times of market stress, such as those experienced during the heights of the COVID crisis,” the authors found.

Miguel Ramos Fuentenebro, however, toldETF Stream “it is a bit simplistic to say senior AAAs are good and junior triple AAAs are bad”.

5. 2024 People & Money Survey, YouGov

The share of UK investors using ETFs has risen by 57% since 2022, the fastest adoption rate of any country in Europe, according to YouGov’s 2024 People & Money Survey commissioned by BlackRock.

While uptake is growing quickly in the UK, the poll found that just 8% of investors use ETFs. This puts it far behind other markets like Germany where 40% of investors use the wrapper thanks to initiatives like ETF savings plans.

That said, the prevalence of ETFs is the UK is expected to continue with ETF ownership forecasted to climb 78% over the next 12 months based on the intentions of respondents. Over half the new investors are expected to be female and about two-thirds will be under 35.