Institutional investors dominate equity ETF activity

Mar 22nd, 2013 | By | Category: Equities

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Institutional market influence was most prominent within the equity exchange-traded fund (ETF) space in 2012, with institutional investors holding roughly one-half of total equity ETF assets, according to a report from Strategic Insight, a US-headquartered mutual fund research firm.

Institutional investors dominate equity ETF activity

Institutional investors dominated equity ETF activity in 2012.

Institutional presence was heaviest within international equity ETFs, accounting for an estimated 57% of total assets (with individual investors and their financial advisors owning 43% of assets).

Dennis Bowden, Assistant Director of US Research at Strategic Insight, said that one reason for high international use was that ETFs allow for quick exposure to liquidity in emerging markets. “A key driver of the heavy international equity ETF use by institutional investors is such investors’ use of ETFs to invest in emerging markets,” said Bowden.

The two largest and most popularly traded emerging markets equity ETFs are the Vanguard FTSE Emerging Markets ETF (VWO) with $77 billion in assets and the iShares MSCI Emerging Markets ETF (EEM) with $46 billion in assets.

Within the core US equity ETF space, institutional market segments accounted for an estimated 46% of ETF assets, but a larger share of aggregate activity in 2012. Institutional investors deposited an estimated net $33 billion into US equity ETF strategies during the year, led by $26 billion into products linked to the S&P 500 Index, such as SSgA’s giant SPDR S&P 500 ETF (SPY), which has more than $130 billion in assets.

The institutional flow total far exceeded the demand for core US equity ETFs within the retail space, estimated at roughly $10 billion, the report said.

“At times, individual investors’ use of ETFs is assumed to mirror overall industry ETF trends. Our research suggests, however, that institutional investors are using ETFs differently than individuals. Therefore assuming that aggregate ETF trends are always reflective of how individuals use ETFs can at times be misleading,” added Bowden.

Within the fast-growing bond ETF space, retail investors dominated aggregate holdings – accounting for 70% of total bond ETF assets as of the end of 2012, with institutional investors owning 30% of such assets. The Pimco Total Return ETF (BOND), managed by fixed income legend Bill Gross, has been one of the most successful funds in this space over the past year, accumulated assets of more than $4.5 billion since its launch in February 2012.

Overall, it is estimated that 58% of ETF assets in the US were held within the retail marketplace at the end of 2012, compared with 42% held by institutional investors. At a more granular level, private banks held the largest ETF asset total at the end of 2012 with roughly $276 billion, and gained $46 billion in 2012 flows. The registered investment advisor channel followed with approximately $267 billion of aggregate ETF holdings and an estimated $28 billion in 2012 net inflows.

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