HANetf research shows European Investor demand for ETFs focusing on income and upside enhancement for defined outcome strategies
Hector McNeil, co-Founder and co-CEO at HANetf
- Just over two thirds of European professional investors expect to have future need for income enhancement and one third preferred downside protection
- Investors had a distinct preference for using the ETF wrapper
- Most investors say wrappers such as bank issued structured products, notes, and certificates is a concern that prevents them from selecting defined outcome strategies however tax is an important feature for some structures.
- Euro Stoxx 50, S&P 500, and FTSE-100 are investors preferred benchmarks for defined outcome strategies
HANetf has conducted detailed market research in order to establish potential demand for ‘defined outcome’ strategies in the ETF wrapper. So far these types of investment products have largely been provided through structured products in Europe. Over the last few years these strategies have become increasingly popular as ETFs in the US markets. HANetf has received multiple requests from asset managers and banks to provide such ETFs as part of its platform and this market research has been used to validate the potential demand.
Income enhancement and upside enhancement are the most in-demand defined outcome strategies among professional investors, new research from HANetf, Europe’s first full services ‘white label’ UCITS ETF issuer shows.
The research, led by Pure Profile during the month of June 2021 among 100 professional investors including institutional investors, hedge fund investors and managers, fund managers, IFAs and wealth managers across the UK, Germany and Switzerland, found 68% have identified immediate or future needs for income enhancement strategies which is unsurprising given the current low-rate environment. This was closely followed by 63% for upside enhancement strategies.
Around 53% say they have immediate or future needs for volatility target strategies while 46% are focused on opportunities for capital protection or floor strategies and 35% on downside or buffer strategies.
According to the research, 93% of investors said that the wrapper, such as a bank note or certificate, prevented them from considering defined outcome strategies. 79% would contemplate using ETFs when considering securing downside protection exposure. About 21% said they have a preferred structure such as a certificate or note from a bank. This appears to reflect the inherent credit risk of the issuer of the note which is usually unsecured credit versus ETFs that are bankruptcy remote and hold physical assets or collateral. Another interesting point was that 60% of investors thought that tax features of structured notes were an important feature.
The study highlighted how widespread use of equity-based defined outcome or structured payoff strategies have been over the past five years, with 59% of professional investors having bought upside enhancement and 58% purchased income enhancement strategies. This reiterates the earlier point on future demand for these two strategies. Also 56% of the investors surveyed said allocations to defined outcome or structured payoff strategies have typically been between 5 and 10% and further 16% greater than 10% allocation which again seems encouraging
The most popular benchmarks for defined outcome strategies identified by the research were the Euro Stoxx 50 chosen by 54% followed by the S&P 500 on 48% and the FTSE-100 on 44%. Just 19% said the MSCI World was their preferred benchmark.
Hector McNeil, Co-CEO of HANetf said “The structured products markets globally is a huge market worth more than $7 trillion and on a par with the global ETF market so it makes sense that investors are happy to consider defined outcome ETFs and that ETF issuers are looking at the market. This is especially attractive for end investors who prefer the reduced counterparty risks ETFs offer versus structured products.
“Eight out of 10 professional investors would consider ETFs for downside protection and that most investors are not concerned about the wrappers when looking at defined outcome strategies.
“Innovation is central to the expansion of the ETF market globally and HANetf is committed to constantly expanding the options for investors by bringing new products and investment solutions to market.”
Around 84% of investors said defined outcome strategies would typically make up less than 10% of their portfolio.
HANetf has seen its assets under management more than double this year exceeding more than $2.5 billion compared with $1.12 billion at the start of the year as it has launched a series of European and global firsts for the ETF market.
HANetf was set up by Hector McNeil and Nik Bienkowski in 2018 to crush the barriers to entry to the European ETF market, by providing a comprehensive ETF product and distribution platform with the ability to issue a new UCITS ETF within 10 weeks.
This includes product development, operational, regulatory, distribution and marketing solutions for asset managers and business who want to successfully launch and manage ETFs and ETPs to leverage their existing brands and expertise.
HANetf’s ETFs are also listed on the London Stock Exchange, Borsa Italiana and SIX Swiss Exchange and are passported for sale in Luxembourg, Netherlands, and Finland. When you trade ETFs, your capital is at risk.