Half of American institutions using exchange-traded funds (ETFs) expect to increase their allocations to ETFs, according to a study.
The Greenwich Associates report, Institutional Investors’ Relationship with ETFs Deepens, finds that 18% of institutional investors now use ETFs in their portfolios, up from 14% last year. Nine out of 10 of these current ETF users expect their level of ETF investment to remain stable or increase in the coming year.
“These results clearly demonstrate that the role of ETFs within institutional portfolios is changing,” says Andrew McCollum, a consultant at the firm.
Although ETFs first entered institutional portfolios mainly as tactical tools and continue to be used in important tactical functions, he adds that many institutions now regularly use ETFs as tools for gaining long-term exposures and implementing core investment strategies.
Usage is higher among certain types of institutions. For example, 47% of endowments use ETFs as do nearly one-quarter of corporate and public pension funds with more than US$5 billion in assets under management.
Nearly 90% of institutions that own ETFs use them in domestic equity portfolios, while 74% use them in international equity portfolios. ETFs are also gaining traction in fixed income, where 55% of institutions invest in domestic bond ETFs.
ETFs also remain effective tools for tactical portfolio functions. Seventy percent of institutional ETF users employ ETFs for tactical portfolio adjustments, up sharply from 48% in 2012.