The use of exchange traded funds (ETFs) among institutional investors has been a mixed bag, but as the number of options has grown, so has interest. Tanzeel Akhtar looks at how ETFs are being used in today’s market.
“Pension funds are experts in the fixed income world, so it may be the case they use ETFs more tactically to meet short-term portfolio needs.”
Jose Garcia-Zarate, Morningstar
It’s taken a while, but the number of institutional investors using exchange traded funds (ETFs) has increased over the years as they search for greater transparency, liquidity and low costs.
Earlier this year, Blackrock and Greenwich Associates questioned 123 European institutional investors – 68 of which were ETF users and 55 were not – about their views on ETFs.
The findings revealed between 30% and 35% of the largest institutional investors in the UK and Europe invest in ETFs. The survey also found interest among institutions is mainly being spurred by the spread of funds into new asset classes.
Jose Garcia-Zarate, senior fund analyst at Morningstar, says the adoption of ETFs in the UK and Europe has largely been driven by institutional demand from the very start. He explains while there are no solid statistics, the word among providers is that ETFs in Europe are 80-90% held by institutional investors and only 10-20% by retail.
“This sets the European market apart from its US counterpart, where the split is more 50/50 institutional/retail,” says Garcia-Zarate.
Source ETFs executive director, equities product management, Chris Mellor believes the growth in ETFs has been an “international phenomenon”, but adds the value of ETFs listed specifically in Europe has almost doubled from €240bn in 2012 to €460bn at the end of 2015.
Source also commissioned separate research in the first quarter of last year that found 80% of UK institutional investors already used ETFs while 52% had ETFs in the top three investment products in their portfolios.
