ETFs provide versatility in a newly volatile market, finds Greenwich Associates

May 4th, 2018 | By | Category: ETF and Index News

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US institutional investors are stepping up their use of ETFs to meet a wide range of strategic and tactical goals, according to the results of a survey by Greenwich Associates.

ETFs provide versatility in a newly volatile market, finds Greenwich Associates

US institutional investors are using ETFs for a wide range of strategic and tactical applications, according to research from Greenwich Associates.

The 180 institutions participating in the Greenwich Associates 2018 US ETF Study increased their use of ETFs in 20 of 21 equity and fixed-income product categories over the past year.

“As they ready their portfolios for the end of the “Goldilocks” market, US institutions are integrating ETFs more deeply into their portfolio management and investment strategies,” said Andrew McCollum, Greenwich Associates managing director and author of the report.

According to the research, the increased ETF use is displacing a number of investment vehicles including individual stocks and bonds, mutual funds, and derivatives. The vehicle being most commonly displaced by ETFs is active mutual funds.

The strategic uses for which ETFs are being deployed include obtaining investment exposures in “core” portfolio allocations, and building top-down strategies that create alpha through asset allocation, as opposed to security selection. Seven out of every ten respondents cited their use of ETFs for these purposes, up from 60% in 2016.

The research also shows that institutional investors are increasingly using smart beta ETFs to guard portfolios against volatility. The share of study participants investing in non-market-cap-weighted/smart beta ETFs increased to 44%, up from 37% in 2016.

Meanwhile, 67% of institutions are relying on ETFs as a liquid, fast and relatively low-cost tool in a wide range of tactical tasks, such as managing cash flows and making tactical changes to their portfolios.

“Investors continue to turn to ETFs to express their views in fast-changing markets,” said Ravi Goutam, head of iShares pensions, foundation & endowments team at BlackRock. “During volatile global equity market activity in February, clients utilized ETFs for efficient liquid market exposures through the secondary market. Investors are also creating solutions using ETFs in innovative ways to drive absolute return and positive outcomes.”

Looking forward, a third (32%) of respondents expect to increase their equity ETF exposure over the next year, compared to just 6% who expect to decrease their exposure. Of those who expect to increase their holdings, 71% expect a change between 5-10% while 18% expect more than a 10% increase.

For fixed income ETFs, a third (32%) of respondents also expect to increase their holdings over the next year, compared to just 4% who expect to decrease their exposure. Of those who expect to increase their holdings, 44% expect a change between 5-10% while 24% expect more than a 10% increase.

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