Institutional investors in North America owned US$56 billion worth of exchange-traded fund assets at the end of 2023, a 22 per cent increase year over year, according to a new report by S&P Global.
The report, based on financial disclosures from U.S. and Canadian pension funds, endowments and foundations and sovereign wealth funds, found the reliance on ETFs has been steadily increasing with significant growth in the past three years.
After a peak in assets under management in 2021, the report noted, ETF assets have been increasing in the portfolios of institutional investors. Since 2018, the compound annual growth rate of ETF assets is, on average, 28 per cent, equivalent to a doubling of AUM every 2.85 years.
According to the report, public pension plans have the most exposure to ETF assets, accounting for two-thirds of all AUM held by institutional investors. Equity (78 per cent) and fixed income (21 per cent) are the two leading types of funds pursued by these investors.
Among equity funds, the report found investors prefer large cap equity ETFs (50 per cent) over blended capitalization (25 per cent). At the end of 2023, investors were overweight to financials ETFs and underweight to information technology fund assets, when compared to the overall ETF industry.
Investors favoured corporate ETFs (45 per cent) within fixed income funds, while treasury and broad market funds have recently trended up. The report also found 71 per cent of fixed income ETFs were investment grade funds, while 23 per cent were in high yield and six per cent in quality blend.
Read: Attracted by liquidity, institutional investors broadening use of ETFs