Exchange traded funds offer various strategies that touch upon a multitude of investment themes and styles. However, institutional investors are more interested in ETFs for their long-term benefits, instead of their quick hedging capabilities.
According to a Greenwich Associates study, institutions prefer ETFs for their “strategic” or longer-term benefits, holding the funds for one year or more, rather than as “tactical,” short-term hedging strategies in portfolio management for one to three months, reports Rosalyn Retkwa for Institutional Investor.
“What changed is that they’re using them for broader purposes,” including the use of ETFs as “liquidity vehicles,” Greenwich consultant Andrew McCollum said in the article. “What we started noticing after the financial crisis was that a lot of funds — primarily, endowments and foundations — increased their cash holdings.” [ETF Liquidity is More than Trading Volume]
But holding cash in a zero-rate environment became “a drag on portfolio returns.” ETFs, though, provide a good substitute that can be easily liquidated, and the investment vehicle have “stronger returns” than cash. [ETF Buying Patterns Highlight Safety Trade]
The study discovered that 51% of institutional investors held ETFs for a year or more in 2012, up from 36% in 2011. Additionally, the number asset managers who held onto ETFs for one year or more also increased to 33% from 18%.