synthetic etfs fall further out of favour

UK investors’ preference for physically-backed ETFs has strengthened in the past year, while concern about counterparty risk has grown, according to Morningstar.

synthetic etfs fall further out of favour


In its third annual UK ETF survey, 90% of respondents came out in favour of physical ETFs, with only 2% preferring synthetic products. This was up from 82% in favour of physically-backed products last year.

Counterparty risk was also of at least some concern to 90% of respondents, while 41% said they were very concerned about it.

Morningstar said 593 people answered the survey: 501 individual investors and 92 professional investors, most of whom were advisers.

The need for further education on the products was clear among both parties, with 65% of retail investors saying they would like to learn more about them before taking the plunge to invest.

Even professional investors had a desire for more education, with 64% who were unsure of using the products saying that they would like to learn more before deploying them in their own or their clients’ portfolios.

This year ETFs have been high on the news agenda, with regulators across the board warning about the emergence of potential stress spots as the market gets larger.

Counterparty risk has been one of the main issues of focus, particularly in cases where the parent companies of ETF providers also act as the counterparty to their swap-based ETFs.

Despite these worries, however, the relative low cost of ETFs continues to act as a pull, with 91% of current investors and 93% of prospective investors in the products citing low costs as either ‘very important’ or ‘important’.



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