Greenwich Associates says ETFs are now strategic tools

Exchange Traded Funds (ETFs) have become an accepted tool in institutions’ investment toolkit, says a study by Greenwich Associates, which claims nearly half (46%) of institutional ETF investors surveyed allocate 10% or more of total assets to the instrument, with a similar number (47%) saying they expect to expand usage in 2015.

The report entitled ‘ETFs: An Evolving Toolset for US Institutions’, studies ETF usage trends at US institutions, including corporate and public pensions funds, endowments, asset managers, insurers and others. It concludes that ETFs have become critical long-term investment tools, with treasurers and other finance professionals seeking core portfolio exposure and growth opportunities in a low interest rate environment, while there has also been an increase in fixed income ETFs.

63% of the thousands of firms canvassed in Greenwich Associates report describe their ETF usage as strategic and long-term, up from 58% in 2013 – in 2010 the figure was only 20%. Almost half of the survey respondents (49%) report average holding periods of two years or more, up from 36% last year, which can perhaps be explained by the instrument’s popularity with pension fund managers where usage is up 19 points with 66% of those responsible for pension provision now saying they use ETFs.

The flexibility of the instrument is also evident with 81% of asset managers choosing it because ETFs allow tactical adjustments to be made. According to Daniel Gamba, head of iShares Americas institutional business at report sponsors BlackRock: “Over the last few years, investors have discovered ETFs usefulness and broadened adoption to many other portfolio applications, including core portfolio exposure and liquidity and risk management. We are seeing the evolution of usage away from just cash equitization or transitions.”

Core exposure is the most common ETF application by pension plans, insurers and corporates as it can handle surplus asset investments, with four fifths now using the instrument to this end, versus 28% in 2010 when the survey started. From 2013 to 2014 the share of insurers in the study using ETFs to invest surplus assets in pensions and the like nearly doubled from 30 to 60%.

Fixed income ETF usage has jumped 10 points to 66% this year with the instrument no longer viewed as merely equity-driven and many asset managers now demanding it be part of their portfolio.

Daniel Gamba concluded that ETFs role in pension and asset portfolios has quickly transformed. “Today ETFs play an important role in institutions’ portfolios in multiple ways strategically and tactically,” he said, before adding that all the signs point towards continued acceptance and usage.”


Related reading