US 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.
US institutions currently represent approximately 36 per cent, or USD756 billion of the total USD2.1 trillion in US ETF assets. Between August and November 2015, Greenwich Associates interviewed 183 US 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.
All of the ETF users in the study invested in equity ETFs, with 36 per cent planning to increase allocations in the year ahead and 35 per cent of those planning to boost allocations by 10 per cent or more. 35 per cent of fixed income ETF users expect to increase allocations this year, and 36 per cent plan to do so by 10 per cent or more.
Greenwich Associates found that approximately 43 per cent of institutional users invest 10 per cent or more of their overall portfolio in ETFs. Nearly 20 per cent 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 per cent of interviewed investors. Other factors considered when selecting an ETF included liquidity/trading volume (76 per cent), expense ratio (72 per cent) and tracking error of the fund (68 per cent).