U.S. institutional investors will continue to fuel growth in the exchange-traded fund industry in 2016, according to a new report from Greenwich Associates.
At present, these investors represent about 36% of the $2.1 trillion invested in U.S. ETF assets, or $756 billion.
Between August and November, Greenwich Associates interviewed 51 pensions, endowments and foundations; 47 RIAs; 41 asset managers; 24 insurance companies and 20 investment consultants about their use and perceptions of ETFs.
The study, which was sponsored by BlackRock, found that all ETF users invested in equity funds, with 36% planning to add to their allocations this year. Thirty-five percent planned to increase their investment by 10% or more.
Similarly, 35% of fixed income ETF users said they would boost allocations in 2016, and 36% of those said they would do so by 10% or more.
Some 43% of respondents said they invested 10% or more of their overall portfolio in ETFs, and nearly 20% were considering adding ETFs to their portfolios in the coming year.
Eighty-two percent of investors told interviewers that matching the exposure they needed was their most important consideration when selecting a fund.
Liquidity/trading volume was another important factor for 76% of ETF users, followed by expense ratio for 72% and a fund’s tracking error for 68%.
The study identified five trends that are driving U.S. institutions’ use of ETFs.
1. Strategic Assets
Last year, 68% of institutions in the study were using ETFs as a primary vehicle to implement long-term strategies, up from 58% in 2013 and 63% in 2014. The main use of ETFs in institutional portfolios was obtaining core exposures — “undoubtedly a strategic function,” according to the study.