Institutional Investors Are Rapidly Expanding Usage of ETFs
New Cerulli research, in collaboration with
The research found that institutional asset owners – including public and corporate defined benefit plans, endowments, foundations, insurance general accounts, and health and hospital systems – have nearly doubled their ETF usage over the past five years, with assets reaching approximately
Institutional asset owners are now allocating to ETFs as both a core portfolio holding and in an operational or tactical manner. According to the study, institutions expect to continue expanding ETF use across both strategic and operational applications. Nearly half of institutional ETF users expect to increase their ETF allocations over the next 24 months, while 16% of current non‑users plan to begin using ETFs during that period. Primary factors for increased adoption of ETFs as core portfolio tools include:
- Improved liquidity
- Operational efficiency
- An expanded menu of ETFs across asset classes
- Longer performance track records
- Ability to deploy capital quickly in one diverse product
- Lower fees
- Asset owners partnering with ETF issuers to bring new, innovative products to market
"As asset managers remain dedicated to developing new ETFs – most notably actively managed strategies and esoteric index exposures – it is important for asset owners to keep a pulse on the pace of innovation and how those new products can be used within portfolios." says
Index tracking ETFs remain an important foundational vehicle, with most institutional asset owners allocating to index equity products such as market-cap weighted or equal-weighted core equity ETFs. While demand for these strategies remains strong, Cerulli research finds that more institutional asset allocators are broadening their ETF usage and are considering active ETFs – especially within active fixed-income – as products approach their three- and five-year track records. As institutional adoption of ETFs continues, the whitepaper highlights several other areas beyond active ETF usage that are poised to expand. ETFs that access unique areas of the market, such as cryptocurrency, bank loans, or emerging markets, offer an efficient way for institutions to gain exposure. The research also explores case studies where asset owners have partnered with an asset manager to develop and seed new ETFs.
"Our research clearly shows that institutional investors are no longer experimenting with ETFs, they are utilizing them to build core positions and make strategic adjustments to their portfolios," said
Inside Institutional ETF Adoption – How asset owners are broadening use cases is the only research of its kind focused exclusively on the
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About Risks
There are risks involved with investing in ETFs, including possible loss of money. Index-based ETFs are not actively managed. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Both index-based and actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.
Investments in financial institutions may be subject to certain risks, including the risk of regulatory actions, changes in interest rates and concentration of loan portfolios in an industry or sector.
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