Outcome-oriented investment approaches driving institutional ETF adoption

Jul 31st, 2014 | By | Category: ETF and Index News

ETF STRATEGY NEWS! ETF Strategy is delighted to announce the launch of ETF Strategy Hub (hub.etfstrategy.com), an on-demand repository of webcasts, videos, podcasts and white papers. Debuting with Special Series on Technology & Innovation in China and the Digital Economy.


Cerulli Associates, a Boston-based market intelligence firm specializing in the global asset management industry, has published research noting that interest in specific investment outcomes will play a major part in driving institutional exchange-traded fund adoption.

Outcome-oriented investment approaches driving institutional ETF adoption

Outcome-oriented investment approaches tend to ignore conventional performance benchmarks and instead focus on achieving a certain goal, or outcome, such as meeting a specific future financial liability.

Outcome-oriented investment approaches typically ignore conventional market capitalisation weighted benchmarks and instead focus on achieving a particular goal (i.e. outcome).

Such goals include achieving reliable fund growth, securing a reliable income stream, or obtaining a return that exceeds inflation or increases the likelihood that it will meet a specific future financial liability.

So-called “smart beta” and particularly factor-based strategies look set to play a growing roll in this investment approach.

One ETF sponsor told Cerulli that institutional use of smart beta or strategic beta strategies will be a key driver of institutional asset management mandates over the next three years and that exposure will likely come via ETFs.

This statement chimes with a recent ‘Cogent Reports’ study, a product of Michigan-based Market Strategies International, which suggests that institutional use of smart beta ETFs will likely accelerate in the near future, and particularly amongst institutional investors with assets in excess of $500 million.

Strategist firms that take the approach of acting as a tactical manager and working with institutions to show various ways that they can incorporate ETFs into their asset allocation models may prove to be more successful in the channel.

One ETF strategist with whom Cerulli spoke stated that an area of focus they are finding beneficial is smaller-sized corporate defined benefit plans that may not be large enough for a separate account structure.

Tags: , , ,

Leave a Comment