A Wall Street firm surveyed 300 global investors on the state of ETFs today - and they revealed the 4 most attractive strategies right now

Reuters

• Brown Brothers Harriman recently released its annual survey of global investors that feels their pulse on the exchange-traded funds market and shows where they are putting their money.
• The investors revealed four kinds of ETFs that they are already deploying or plan to use within the next 12 months: actively managed, low-volatility, ESG, and fixed-income.
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The $6.3 trillion exchange-traded fund industry is showing no signs of slowing down.

To that end, Brown Brothers Harriman once again surveyed 300 investors split evenly between the US, China, and Europe to feel their pulse on the ETF market and discover where they are putting their money. Seventy-one percent of the respondents manage more than $100 million in assets.

They shared four ETF investing strategies that are booming or expected to explode in the near future - and which they plan to take advantage of.

1. Actively managed ETFs

Active mutual fund managers have suffered outflows for several years due to the adjacent rise of ETFs.

But last year, the SEC threw them a lifeline when it approved a new fund structure that serves as a middle ground between active funds and traditional ETFs.

So-called non-transparent active ETFs allow portfolio managers to load funds at their discretion instead of being passively tied to indexes. Other major benefits include quarterly reporting of holdings instead of daily and greater tax efficiency than mutual funds.

The appeal of this strategy is catching on, and 62% of US investors in the BBH survey said they planned to increase their allocation in the next 12 months.

Precidian Investments, the firm that won the big SEC approval last year, has announced that it licensed its ETF structure to Goldman Sachs Asset Management and Alger.

Fidelity, T. Rowe Price, and Natixis are other firms that have also gained the SEC's approval to launch ETFs of this nature.

2. Low-volatility ETFs

Low-volatility tied with active ETFs as the top strategies that investors want more of on the market in 2020.

This indicates there's growing demand for ETFs as part of traditional hedging strategies for when risky assets go haywire.

Invesco offers low-volatility ETFs in small- and mid-cap flavors. They both track stocks in their respective S&P indexes that experienced the lowest realized volatility over the past 12 months.

3. Fixed-income ETFs

During times of market turmoil, fixed-income ETFs are the top choice for investors across the US, Europe, and China, according to the survey. European ETFs linked to this asset class received more inflows than equity funds in 2019 - the first time in three years, according to Bloomberg.

The iShares Core US Aggregate Bond ETF and Vanguard Total Bond Market ETF are two of the biggest options for equity investors who wish to diversify their portfolios.

4. ESG funds

Last year, sustainable mutual funds attracted $20.6 billion of inflows - nearly four times the previous record set in 2018 according to Morningstar data.

When it comes to ETFs, inflows have not been as robust, BBH says.

But this actually creates a huge growth opportunity for ETFs that adhere to the environmental, social, and governance standards that are taking over the rest of the business world by storm.

Sixty-nine percent of US investors said they planned to increase their allocations to ESG investments (ETFs and more) over the next year.

The iShares ESG MSCI USA ETF is an option for investors who want a head start. It achieves a more sustainable outcome than the MSCI USA index but has similar risk and return profiles, according to iShares.

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