What do investors use ETFs for?
19 May 17
The use of index trackers by professional investors has skyrocketed in recent years. Investors have been attracted by the easy access to ETFs, their transparency and of course their low fees. But what do they exactly use ETFs for? Greenwich Associates asked 132 institutional investors the question.
The growing evidence that exposure to certain factors produces better risk-adjusted returns, combined with ever more competitive fees, is driving institutional investors to adopt so-called smart beta ETFs. Approximately a quarter of institutional ETF investors are now using non-market-cap weighted ETFs.
And the prospect of being able to design their own index, allowing to take ownership of the investment process, also attracts investors.
“As an institutional investor, I can now ask an index provider to design a proprietary index based on the risk/return profile I want, and implement this strategy in a passive way,” Freddy van Mulligen, head of manager selection at the Dutch pension and insurance giant Achmea Investment Management, told Expert Investor in a recent interview.
Van Mulligen, having introduced smart beta strategies in October last year, is one of 26% of institutional investors who now use smart indexing. And three quarters of these users plan to increase allocations to these funds in the next year.
The most popular factor to capture is low-volatility, which is used by 73% of smart beta users. Interest in ETFs designed to deliver a positive environmental, social and governance (ESG) impact is also growing. Currently, 18% of those using non-market-cap weighted/smart beta ETFs invest in ESG trackers. However, nearly one-quarter of institutions planning to increase allocations to non-market-cap weighted/smart beta ETFs expect to boost their holdings of ESG ETFs next year, according to the study.
Tags: ETF | Investment Strategy | Passive Investing
