NEW YORK--(BUSINESS WIRE)--
U.S. institutions plan to increase their use of ETFs in 2016 according
to a new report, Institutional
Investment in ETFs: Versatility Fuels Growth from Greenwich
Associates. The study, which is in its fifth year and sponsored by
BlackRock, found that institutions are increasingly using ETFs for
longer-term, strategic allocations as well as cost-effective
replacements for bonds and derivatives.
U.S. institutions currently represent approximately 36%, or $756bn of
the total $2.1tn in U.S. ETF assets.1 Between August and
November 2015, Greenwich Associates interviewed 183 U.S. institutional
investors about their use and perceptions of ETFs. This included 41
asset managers, 51 institutional funds (pensions, endowments and
foundations), 47 RIAs, 24 insurance companies and 20 investment
consultants.
All of the ETF users in the study invested in equity ETFs, with 36%
planning to increase allocations in the year ahead and 35% of those
planning to boost allocations by 10% or more. 35% of fixed income ETF
users expect to increase allocations this year, and 36% plan to do so by
10% or more.
Greenwich Associates found that approximately 43% of institutional users
invest 10% or more of their overall portfolio in ETFs. Nearly 20% of
non-ETF users are considering adding ETFs to their portfolios in the
next year.
Matching the exposure needed was the most important factor when
selecting an ETF as mentioned by 82% of interviewed investors. Other
factors considered when selecting an ETF included liquidity/trading
volume (76%), expense ratio (72%) and tracking error of the fund (68%).
Greenwich Associates identified five key trends driving ETF growth in
the U.S. institutional market:
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1.
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Existing institutional users are finding new applications for
ETFs in their portfolios, and a growing number are using ETFs as a
primary vehicle to implement long-term strategies: 68% of
institutional ETF assets are now categorized as “strategic” in
nature—a share that has climbed from 58% in 2013 and 63% in 2014.
The most popular application for ETFs within institutional
portfolios is obtaining core exposures—undoubtedly a strategic
function.
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2.
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Fixed income ETF use is expanding: 65% percent of
institutional ETF users employ the funds in fixed income.
Liquidity levels in traditional fixed income markets have declined
over the past several years, creating serious portfolio challenges
for investors. Liquidity issues have led many institutions to
adopt fixed income ETFs, as ETF liquidity has increased
dramatically over the same period. In 2015, institutions name
liquidity as an important reason for investing in bond ETFs.
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3.
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Institutions are using ETFs alongside derivatives: ETFs are
increasingly being evaluated along with derivatives to determine
the best tool to hedge or gain market exposure. More than half the
institutions in this year’s study replaced derivative products,
such as equity futures contracts, with ETFs in the last year, and
78% of futures users plan to replace an existing futures position
with an ETF in the next 12 months.
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4.
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Innovative ETF strategies and approaches are gaining traction
among institutions: Approximately 30% of institutions are
employing smart beta (non-market-cap weighted) ETFs, and an equal
percentage are using currency hedged ETFs. At the same time, asset
managers offering increasingly popular multi-asset-class funds are
using ETFs to fully implement strategies or scale their products.
ETFs now make up 48% of assets in multi-asset portfolios,
according to asset managers running these funds.
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5.
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Insurance companies are adopting ETFs as a means of investing
both surplus and reserve assets: As recently as 2013 only 30%
of insurance companies used ETFs to invest surplus assets, and
only 6% used ETFs to invest reserve assets. This year, 59% of
insurers in the study are using ETFs for surplus assets and 71%
are using ETFs to invest reserve assets, higher than expectations.
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Daniel Gamba, Head of iShares U.S. institutional Business at
BlackRock commented:
“U.S. institutions are contributing to the relentless growth of the ETF
industry as they take advantage of the potential benefits and
applications of ETFs. Institutions are using ETFs to seek additional
liquidity in their bond portfolios, to aim to outperform broad market
returns via smart beta strategies and to make longer-term strategic
allocations. Some investors are also reducing their portfolio costs by
replacing futures with ETFs.”
“We expect 2016 will be another record year for the ETF industry, and we
look forward to working with our clients as they use ETFs to help
achieve their goals.”
About BlackRock
BlackRock is a global leader in investment management, risk management
and advisory services for institutional and retail clients. At December
31, 2015, BlackRock’s AUM was $4.645 trillion. BlackRock helps clients
around the world meet their goals and overcome challenges with a range
of products that include separate accounts, mutual funds, iShares®
(exchange-traded funds), and other pooled investment vehicles. BlackRock
also offers risk management, advisory and enterprise investment system
services to a broad base of institutional investors through BlackRock
Solutions®. As of December 31, 2015, the firm had approximately 13,000
employees in more than 30 countries and a major presence in global
markets, including North and South America, Europe, Asia, Australia and
the Middle East and Africa. For additional information, please visit the
Company’s website at www.blackrock.com
| Twitter: @blackrock_news | Blog: www.blackrockblog.com
| LinkedIn: www.linkedin.com/company/blackrock
About iShares
iShares is a global leader in exchange-traded funds (ETFs), with more
than a decade of expertise and commitment to individual and
institutional investors of all sizes. With over 700 funds globally
across multiple asset classes and strategies and more than $1 trillion
in assets under management as of December 31, 2015, iShares helps
clients around the world build the core of their portfolios, meet
specific investment goals and implement market views. iShares funds are
powered by the expert portfolio and risk management of BlackRock,
trusted to manage more money than any other investment firm.2
Carefully consider the Funds' investment objectives, risk factors,
and charges and expenses before investing. This and other information
can be found in the Funds' prospectuses or, if available, the summary
prospectuses which may be obtained by visiting www.iShares.com
or www.blackrock.com.
Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
There can be no assurance that an active trading market for shares of an
ETF will develop or be maintained. The strategies discussed are strictly
for illustrative and educational purposes and are not a recommendation,
offer or solicitation to buy or sell any securities or to adopt any
investment strategy. There is no guarantee that any strategies discussed
will be effective.
The study Institutional Investment in ETFs: Versatility Fuels Growth
from Greenwich Associates was sponsored by BlackRock.
The Funds are distributed by BlackRock Investments, LLC (together with
its affiliates, “BlackRock”).
©2016 BlackRock. All rights reserved. iSHARES and BLACKROCK are
registered trademarks of BlackRock. All other marks are the property of
their respective owners. iS-17557
___________________________________
1 Source: The
Cerulli Report, Exchange-Traded Fund Markets 2015: Opportunities in the
Face of Changing Dynamics
2 Based on $4.645 trillion in
AUM as of 12/31/15.
View source version on businesswire.com: http://www.businesswire.com/news/home/20160120006142/en/
BlackRock
Peter McKillop, 212-810-3737
Peter.McKillop@blackrock.com
or
Paul
Young, 212-810-8142
Paul.Young@blackrock.com
Source: BlackRock