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EDHEC-Risk 2020 Survey Results Show Strong Motivations For Integrating ESG, Whether In ETFs, Or In Smart Beta And Factor Investing Strategies

Date 01/10/2020

EDHEC-Risk Institute has announced the results of the 13th EDHEC European ETF, Smart Beta and Factor Investing Survey, a comprehensive survey of 191 European ETF and smart beta investors, conducted as part of its Amundi research chair on “ETF, Indexing and Smart Beta Investment Strategies”. This survey, conducted since 2006, aims to provide insights into European investors’ perceptions, practices and future plans in the domain of ETFs and Smart Beta. The 2020 edition presents a new focus on SRI/ESG investing.

Here’s a selection of key findings about the current use and future development of ETFs, smart beta and factor investing strategies, as well as the integration of ESG within these products.

Current use and future development of ETFs

  • In 2020, 49% of respondents are investing in SRI/ESG, a significant increase compared to 17% in 2011. Among them, 55% have used ETFs to invest in SRI/ESG in 2020 (33% in 2019), with a satisfaction rate of 87% (68% in 2019).
  • Achieving broad market exposure still tops the list of reasons for using ETFs, with 77% of respondents using them frequently for this purpose.
  • Cost and quality of replication are the two main drivers for selecting ETF providers (91% and 86% of respondents, respectively).
  • About two-thirds of respondents (65%) have used ETFs to invest in smart beta in 2020, and 47% of smart beta and factor investing has been done through ETFs in 2020.
  • 54% of investors still plan to increase their use of ETFs in the future despite the already high maturity of this market and high current adoption rates.
  • 50% of respondents would like to see further developments in SRI/ESG-based ETFs and/or low-carbon ETFs, compared to 38% in 2019.

How sustainable investing fits into investors’ concerns

  • Allowing for a positive impact on society (65%) as well as reducing long-term risk (58%) are the two main reasons why respondents incorporate ESG into their investment decisions. However, the majority (63%) do not want this to be done at the expense of weaker performance.
  • More respondents (45%) favour a best-in-class (positive screening) approach to SRI/ESG implementation over the thematic approach (30%) and the negative screening approach (25%).
  • The majority of respondents (57%) identify the E (Environmental) as the most important dimension of ESG. The G (Governance) comes second (36%) and the S (Social) ranks last with only 7%.
  • 45% of respondents consider that the best approach to reducing the carbon footprint of a portfolio is positive screening.

Current use and future development of smart beta and factor investing strategies

  • Improving performance and managing risk are the two main motivations for using smart beta and factor investing strategies. Despite this strong level of motivation, 70% of respondents invest less than 20% of their total investments in these strategies.
  • In terms of the actual product wrapper, respondents favour passive funds that replicate smart beta and factor investing indices (57%).
  • About three-fifths of respondents believe that the three typical factors of the credit risk market, namely carry/level of the yield curve, credit and slope of the yield curve, are the most relevant rewarded factors (63%, 60% and 59% respectively).
  • When asked about the smart beta solutions they think require further development by providers, respondents cited ESG, fixed income and alternative asset classes. They would also like to see more customised solutions developed.
  • The development of new products corresponding to these demands may lead to even higher take-up of smart beta solutions. 48% of respondents plan an increase of more than 10% in terms of assets in their use of smart beta and factor investing products in the near future.

Commenting on the results of the survey, Fannie Wurtz, Head ETF, Indexing & Smart Beta at Amundi, had this to say: “As a pioneer in sustainable investing, Amundi is delighted to see growing interest from investors in ESG solutions. With respondents reporting a range of objectives for their ESG allocations, from a positive impact on society (65%), to reducing long-term risk (58%) and improving performance (25%) we recognise that there is no one-size-fits-all in sustainable investing. With our focus firmly on our clients we have developed a range of responsible ETFs designed to meet the varied objectives of investors.”

Professor Lionel Martellini, Director of EDHEC-Risk Institute, added, “The 2020 edition of the EDHEC European ETF, Smart Beta and Factor Investing Survey conducted as part of the Amundi research chair at EDHEC-Risk shows a significant increase in the use of ETFs for ESG investing. Overall, 39% of total assets under management in ESG takes the form of ETF investments for our survey respondents in 2020, with a satisfaction rate of 87%. This finding confirms that ESG investing has become a key force in the industry, and that ESG exposure can be achieved not only via active managers, but also via passive investment vehicles.”

A copy of the EDHEC-Risk Institute survey can be found here:

EDHEC-Risk Institute Publication: EDHEC European ETF, Smart Beta and Factor Investing Survey 2020

This research was supported by Amundi as part of the research chair at EDHEC-Risk Institute on “ETF, Indexing and Smart Beta Investment Strategies”.

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