The exchange-traded fund industry has built its foundation on passive products invested in broad market indexes, but investors in greater numbers are opting for ETFs that employ active strategies and/or focus on themes targeting niche market sectors, according to a new survey from Brown Brothers Harriman, an ETF custodian and administrator.

The firm’s eighth annual global ETF investor survey gathered responses from 382 financial advisors, institutional investors and fund managers from the U.S., Europe and China to identify key trends in sentiment and innovation within the ETF space.

Among the findings, 72% of respondents indicated they plan to raise their ETF allocation in the next year. That’s three percentage points more versus last year’s survey.

The U.S. represents 70% of the global $8 trillion ETF market, which grew 26% last year.

Elsewhere, 65% of respondents said they plan to boost their exposure to actively managed ETFs. That’s up from 57% in last year’s survey. While active product comprise just a tad less than 3% of the entire global ETF market, BBH posits that the introduction of semi-transparent fund structures is helping to propel asset flows into active ETFs.

Asset managers such as T. Rowe Price, Fidelity and many other firms have rolled out products that don’t fully disclose portfolio holdings on a daily basis like traditional ETFs must do. Instead, they use so-called semi-transparent structures that enable funds to report their holdings in a way that enables them to trade while shielding the individual weights of the holdings within the portfolio.

Among U.S. respondents to the BBH survey, 51% said they would buy a semi-transparent, active ETF this year. Regarding active ETFs as a whole in the U.S., the top categories were fixed income, global equity and currencies.

Thematics And ESG
According to the survey, 80% of global ETF investors said they plan to increase their exposure to thematic products this year. There was no comparison number provided vis-à-vis last year, but the basic takeaway is that thematic sectors such as internet/technology, robotics/artificial intelligence and environment/sustainability are grabbing investor attention.

BBH said that while data for its thematic category don’t include funds the employ environmental, social and governance criteria for choosing portfolio holdings, it noted that a record $89 billion went into ESG ETFs last year on a global basis, which was nearly 220% greater than the prior year. Europe accounted for a little more than half of those flows.

And BBH said ESG investing will likely benefit from potentially powerful forces including the eco-inclined nature of the Biden administration in the U.S., the strong push for environmental initiatives in Europe and China’s stated objective of carbon neutrality.