Fifth of UK investors never heard of ETFs

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Fifth of UK investors never heard of ETFs
One in five UK retail investors currently invest in ETPs (Credit: Luke MacGregor/Bloomberg)

A survey from ETF provider WisdomTree found education was the main barrier to investing in ETFs or ETPs as 34 per cent of those who do not invest in them said it was due to not understanding them.

ETPs are an umbrella term for exchange-traded funds (ETFs), exchange-traded commodities (ETCs), and exchange-traded notes (ETNs).

The European ETF market gathered €42.7bn (£35.5bn) of flows in the first quarter of 2022, 25 per cent more than in the previous quarter, according to Morningstar’s Q1 European ETF asset flows update.

Yet in the UK 19 per cent of respondents told WisdomTree that they had never even heard of ETFs or ETPs. 

ETP uptake has been slower in the retail market, and particularly in the UK when compared with other European countries like Germany.Adria Beso

The provider, which polled 1,000 UK retail investors in early February, found instead of investing in ETPs, 47 per cent of UK investors invested in single stocks and shares and 33 per cent in open-ended funds, while 32 per cent allocated to investment trusts.

Adria Beso, head of platforms distribution at WisdomTree Europe, said uptake was particularly slow in the UK retail space.

He said: “Despite the large growth in demand for ETFs and ETPs by professional investors, uptake has been slower in the retail market, and particularly in the UK when compared with other European countries like Germany.

"Confidence in knowing how and why to invest in ETFs and ETPs is low, leading to a lack of investment despite the fact they are easily traded, offer diversification and more transparency, and are low cost, all of which are important in the current economic backdrop."

ETFs are not widely available on platforms and most people don’t need to use ETFs either, as simple unit trusts or Oeics will do the job just fine.Alan Chan

Alan Chan, director and Chartered financial planner at IFS Wealth & Pensions, said he was not surprised by the findings.

"Financial education in the UK is fairly poor for a developed country," he said. "ETFs are not widely available on platforms and most people don’t need to use ETFs either, as simple unit trusts or Oeics will do the job just fine."

He added: "ETFs also incur additional trading fees as they’re treated like shares, unlike Oeics or unit trusts, so while some ETFs may have lower annual costs, they can work out to be more expensive especially for regular savings or those individuals that trade often."

Assets under management in ETFs remained at €1.4tn (£1.2tn), according to Morningstar, because of the dip in stock and bond market valuations triggered by the war in Ukraine and the rise in inflationary pressures.

Flows into ESG ETFs meanwhile accounted for about a third (30.4 per cent) of total flows.

 

Wisdom Tree said platforms should do more to provide access to ETPs.

It found 36 per cent of UK retail investors got their investment research and information from their investment platform or broker, 35 per cent from a financial adviser and 33 per cent from financial news sites.

New crypto ETPs

Wisdom Tree itself has recently added three physically-backed cryptocurrency ETPs to its European range of funds. But these too are currently only available to institutional investors due to regulatory restrictions.

Wisdom Tree has launched Solana, Cardano and Polkadot ETPs (Credit: Gabby Jones/Bloomberg)

Crypto ETPs offer customers exposure to crypto assets by tracking the underlying price of the currencies without requiring investors to hold the assets themselves.

The Solana, Cardano and Polkadot ETPs have been listed on the Swiss Stock Exchanges SIX and Börse Xetra, and on Euronext exchanges in Amsterdam and Paris from March 31.

ETPs are flourishing in Europe but in the US the Securities and Exchange Commission is still preventing spot ETFs from launching.

In contrast, investors seeking crypto exposure are left with futures ETFs "which incur roll costs and trusts that trade away from their underlying value", according to a Bloomberg Intelligence report out earlier this month.

BI predicted if regulatory approval allowed for the launch of a spot Bitcoin ETF by the end of 2023, this would spark "tens of billions in assets added to crypto funds" and push crypto assets into the mainstream.

Expanding crypto universe

Alexis Marinof, head of Europe at WisdomTree, said: "Interesting and different use cases for the likes of Solana, Cardano and Polkadot represent the next stage of evolution for this young asset class.

"While bitcoin and Ethereum grab the headlines, altcoins are now viable options for many institutional investors, providing more options to diversify their crypto holdings just like they would with any other asset class.”

Created in 2017, Solana is a smart contract platform for decentralised applications similar to Ethereum, but promises to be cheaper than its rival.

Alongside a proof of stake model it features a timestamp system called proof of history that enables automatically ordered transactions.

Solana has gained popularity in relation to social networks, blockchain gaming, and decentralised exchanges.

Similarly, Cardano was created in 2015 as a smart contract platform alternative to Ethereum.

Cardano is used in areas such as education credential verification, retail product counterfeiting and in finance for Know Your Customer and Anti-Money Laundering checks.

Polkadot was created in 2016 with a focus on connecting various blockchains for transferring data or assets. It is used for things like decentralised exchanges, data processors and bridging solutions.

carmen.reichman@ft.com