On Thursday, iShares released its Institutional Outlook for 2014, delineating three major trends it expects to play out this year in institutions’ use of ETFs.
In a statement, Daniel Gamba, head of iShares Americas Institutional Business at BlackRock, said that in 2013 “new institutions such as regional banks, insurance general accounts and new global asset managers ‘test drove’ ETFs for the first time.”
Considering factors that may increase market volatility this year, Gamba said that for those institutions, ETFs will likely be an important part of their “investment toolkit tactically and strategically due to their ease of use, diversification, liquidity and access to targeted exposures.”
The three major trends iShares expects in 2014 are:
1) ETF Product Innovation With Input From Clients
iShares expects to see ETFs “replicating high-quality benchmarks at competitive prices being used in strategic portfolios by asset managers, pension plans” VA manufacturers, RIAs and non-U.S. institutions. Specifically, institutions are expected to increase their use of non-market cap-weighted ETFs, including factor and minimum-volatility ETFs, which attracted $51.5 billion in inflows globally in 2013. ETF providers will need to include institutions in their product development process, iShares said, much as they have already done in some recent ETF introductions.
2) Continued Growth in ETF Usage by Asset Managers and Strategists
The use of ETFs among global asset managers’ portfolios increased 32% to $179.5 billion from Q3 2012 to Q3 2013, reflecting asset managers’ desire to achieve alpha, iShares said, in balanced funds, global asset allocation funds, defined contribution funds and even annuities. Growth is also expected for what iShares calls ETF investment strategists, who build ETF-based model portfolios for advisors, small pensions and individual investors.