- Institutions are increasingly using ETFs for longer-term, strategic allocations as well as cost-effective replacements for bonds and derivatives.
- All of the ETF users in the study invested in equity ETFs, with 36% planning to increase allocations in the year ahead and 35% of fixed income ETF users expect to increase them too
U.S. institutions plan to increase their use of ETFs in 2016 according to a new report, “Institutional Investment in ETFs: Versatility Fuels Growth” from Greenwich Associates.
The study, which is in its fifth year and sponsored by BlackRock, found that institutions are increasingly using ETFs for longer-term, strategic allocations as well as cost-effective replacements for bonds and derivatives.
U.S. institutions currently represent approximately 36% of the total $2.1tn in U.S. ETF assets. All of the ETF users in the study invested in equity ETFs, with 36% planning to increase allocations in the year ahead and 35% of those planning to boost allocations by 10% or more. 35% of fixed income ETF users expect to increase allocations this year, and 36% plan to do so by 10% or more.
The firm found that approximately 43% of institutional users invest 10% or more of their overall portfolio in ETFs. Nearly 20% of non-ETF users are considering adding ETFs to their portfolios in the next year.
Matching the exposure needed was the most important factor when selecting an ETF as mentioned by 82% of interviewed investors. Other factors considered when selecting an ETF included liquidity/trading volume (76%), expense ratio (72%) and tracking error of the fund (68%).
The study identified five key trends driving ETF growth in the U.S. institutional market:Existing institutional users are finding new applications for ETFs in their portfolios, and a growing number are using ETFs as a primary vehicle to implement long-term strategies; Fixed income ETF use is expanding; Institutions are using ETFs alongside derivatives; Innovative ETF strategies and approaches are gaining traction among institutions; And Insurance companies are adopting ETFs as a means of investing both surplus and reserve assets
Daniel Gamba, Head of iShares U.S. institutional Business at BlackRock commented: “We expect 2016 will be another record year for the ETF industry, and we look forward to working with our clients as they use ETFs to help achieve their goals.”
Between August and November 2015, Greenwich Associates interviewed 183 U.S. institutional investors about their use and perceptions of ETFs. This included 41 asset managers, 51 institutional funds (pensions, endowments and foundations), 47 RIAs, 24 insurance companies and 20 investment consultants.