Canadian institutional investors that use exchange-traded funds allocate an average 18.8 per cent of total assets to them, according to research by Greenwich Associates.
The research, which interviewed 52 global institutional investors, found that the primary driver behind the increased use of ETFs for Canadians is their versatility. Some 70 per cent of participants characterized their ETF investments as strategic, an increase of 12 percentage points on the same research conducted in 2016. As well, 53 per cent said their average holding period for ETFs was greater than two years.
“Canadian institutions are using ETFs because they are easy to use, fast to execute, liquid, simple, relatively cheap to trade, and provide diversification in a single trade,” says Andrew McCollum, managing director at Greenwich Associates and author of the report, in a release.
Across all participants in the survey, more than four in five used ETFs for international developed market equity exposure and three-quarters used them for emerging-market and U.S. exposure, followed by domestic (72 per cent), European (69 per cent) and Asian (59 per cent) equity.
The research also found that 28 per cent of participants deployed commodities ETFs, compared to 16 per cent in 2016, while use of real estate investment trust funds increased to 31 per cent this year from 19 per cent the previous year. Also, Canadian institutional investors dramatically increased their deployment of cash and cash-equivalents ETFs, with 31 per cent of respondents saying they used them in 2017, more than twice (14 per cent) the percentage that did so in 2016.
“The increasing use of ETFs across a wide range of portfolio functions is really the continuation of a long-term trend in Canada,” said Pat Chiefalo, head of iShares for BlackRock Canada, which sponsored the research.
“Institutional managers will often start using ETFs in a circumscribed way, usually for tactical applications, but once they realize the benefits of ETFs’ liquidity, cost-efficiency and convenience, they go on to wider and more strategic uses. As the diversity of the ETF market grows and investors become more familiar with their applications, we expect this trend to continue for some time.”
In both equities and fixed income, institutional investors expect to increase ETF allocations by more than 10 per cent, according to the research. All of the investors surveyed used equity ETFs, compared to 82 per cent in 2016, and did so to gain exposure across a wide range of markets and geographies.