More than two-thirds of investors have said they expect to increase their exposure to exchange-traded funds (ETFs) in the coming year, according to new research. 

Sixty-nine per cent of UK investors said their use of ETFs would increase in 2012, when surveyed at the iShares Insights Annual Conference, while 84 per cent claimed that they are not put off by high cost ETFs.

ETFs operate by tracking an index and, like a stock, trade on an exchange.

They are considered passively managed as their success relies on asset allocation, as opposed to the fund manager's skill at stock picking.

As a result, ETFs are typically much more cost effective than actively managed mutual funds, generally with lower total expense ratios (TERs) and running costs.

Attendees were also asked to rank the most important factors in choosing an EFT.

Costs associated with liquidity of assets, such as the bid-to-offer spread - the difference between the buy and sell price - and the cost of index rebalancing were important factors for 64 per cent of respondents.

However, 84 per cent of investors said they looked beyond the TER when considering the total cost of investing in an ETF.

David Bower, head of iShares UK, commented, 'As the ETF market has grown in size and in the number of products available, investors are fast recognising that not all products are equal, and that factors such as structure, performance versus an index and cost can determine the overall performance of their investment.

'As our survey reveals, looking beyond TER is also vital as there are many factors which affect the true cost of holding an ETF. Product providers can play a vital role in helping investors to conduct effective due diligence when they are choosing how to invest,' he added.

Stephen Cohen, head of iShares investment strategies, said, 'During market volatility and with UK interest rates so low, many investors are adopting an agile and global perspective to achieve returns. ETFs can help them to make tactical shifts between asset classes and regions efficiently, and to maintain strategic allocations in a cost-effective and transparent manner.'