- ETFs are commonly used instruments in portfolio construction by sophisticated UK investors for their simplicity, transparency, liquidity, and low costs. Commodity and fixed income ETFs are now almost as frequently used as equity ETFs. - Investors use equity ETFs across various market sectors and regions. Over 50% of advisors interviewed operate under a fee-based model. While most use ETFs for short-term market exposure, some rely on them for long-term exposure or a combination of both. - Liquidity and transparency are the most important reasons for using ETFs. Frequent users want transparency in costs, investment processes, and risk management. However, concerns remain

1. The UK Market for ETFs Research results 21 February 2012

7. Second Survey (Fieldwork December - February) Selective quotes representing respondents views: “ We are concerned that the next big disaster (in investing) will be in ETFs ……….until we are fully convinced of all downside risks we wont be using them.” “ Yes - due to FSA comments, the media, our clients have shown anxiety towards synthetics and therefore they're no longer using them. Basically, despite the advantages/cost-savings of synthetics, it doesn't make economic sense to sell them to retail clients at the moment because of the extra labour required (explaining the structure, risks etc.)” “ Most ETFs are liquid and transparent. We will continue to use them.” “ There has been much media scrutiny of ETFs which is good for the industry …. It is right that synthetics should come under the spotlight. We will continue use all forms of ETFs.” “ We are much more knowledgeable about ETFs than we were a year ago.”

9. Second Survey (Fieldwork December - February) Selective quotes representing respondents views: “ We will use ETFs more because we are looking for innovative ways to access the market.” “ ETFs are ideal instruments to use in current market conditions ….. we will likely be using them even more in 2012 than we already do.” “ Our equity market exposure is increasingly driven by top down allocation decisions, particularly in the emerging markets. You have to be in the right markets. ETFs are good instruments to use for this purpose – although there is still limited in coverage in some emerging market areas.”

15. Second Survey (Fieldwork December - February) 7 a) Sophisticated and frequent ETF users who do not need to have the differences explained and remain happy to use swap back ETFs. b) Less frequent, often relatively new users (particularly institutional investors and IFAs) as well as those looking to invest via ETFs for the first time. This group are often confused by the physical vs swap back debate. The media coverage and/or general conversations they have had with colleagues might have had some sort of negative impact in some cases. c) Those that do not use ETFs and then cite the negative media coverage as an excuse for not doing the work to find out more about exchange traded funds. Selective quotes representing respondents views: “ Synthetics are easier to track an index, they are cheaper too. More providers are going down the synthetic route.” “ There is confusion over the different forms of ETFs and their associated risks". “ These things are rarely portrayed accurately in the media.”