Chief financial officers and other corporate investors are stepping up their use of exchange traded funds, according to a recent report.
As investors search for low-cost investing products, ETFs are a natural choice due to the lower fees. The industry has begun to catch the attention of many CFOs and corporate investors, as they found that ETFs meet their investing requirements, reports Karen M. Kroll for CFO World. [Does it Matter Who Manages my ETF?]
“Part of the growth in the ETF market is due to the expanding number of products across different ranges of asset classes,” Ed McRedmond, senior vice president of institutional and portfolio strategies with Invesco PowerShares, said in the report. [Why More Money Managers are Using ETFs]
ETFs still represent a small fraction of the overall mutual-fund business. At the end of 2011, assets in mutual funds were at $11.6 trillion, eclipsing the $1.05 trillion that the ETF industry has gained, according to the ICI.
At the moment, “it’s hard to get a sense on corporate use of ETFs,” according to McRedmond. That’s because data submitted to the Securities and Exchange Commission on ETF investors come in the Form 13F. These reports are filed by most institutional investment managers with $100 million or more in assets under management, reports Kroll.
The good news is that when a corporate holder does show up in the 13F, it is usually in reference to the company’s retirement funds. Some ETFs are showing up as retirement plan options within 401(k) plans. [Why ETFs Aren’t in More 401(k) Plans]
“That’s an area where we’re seeing ETFs get a little more traction, in addition to corporate pension fund portfolios, “McRedmond said.
Other areas that ETFs would enhance corporate portfolios include when one company is acquiring another; it could buy an industry-related ETF to hedge against value increases during negotiations. A company could also hedge expenses in an ETF that holds materials or commodities that the business is focused on.
Tisha Guerrero contributed to this article.