Exchange traded funds are widely used as efficient investment vehicles to capture specific or broad market moves. This aspect has not gone over the heads of money managers, who are including ETFs into their investment portfolios, even products created by their competitors, according to a recent report.
BlackRock (NYSE: BLK), the parent company of the iShares ETF unit, is one of the largest users of other providers’ ETFs, writes Randy Diamond for Pensions & Investments. [Managed ETF Portfolios]
BlackRock invested $8.9 billion in 98 ETFs at the end of 2011, with $2.8 billion in other firms’ products, including $1.7 billion in State Street’s ETFs, $436.2 million in Vanguard, $410.3 million in ETF Securities, $176.4 million in Van Eck Global, $52.1 million in Sprotts Asset Management, $22.5 million in Invesco PowerShares and $1.1 million in WisdomTree.
PIMCO is the second largest money manager to use other firms’ ETFs. The company had $2.9 billion invested in ETFs at the end of last year, with $2.1 billion from other companies’ funds, including $1.2 billion in the Vanguard Emerging Market ETF (NYSEArca: VWO) and $893.7 million in SPDR Gold Shares ETF (NYSEArca: GLD).
SSgA held $4.3 billion in ETFs, with $1.9 billion from other providers’ products, including $990 million in BlackRock, $860.4 million in Vanguard, $28.9 million in Powershares, $9.4 million in PIMCO and $3.2 million in Van Eck.
““We would use ETFs because they are a liquid, cost-effective way to gain exposure as opposed to buying all of the direct, physical securities, which could take more time and complexity,” Daniel Farley, senior managing director and chief investment officer at SSgA, said in the article.
Vanguard held $78.5 million in the SPDR S&P 500 ETF (NYSEArca: SPY), despite offering a similar product, the Vanguard S&P 500 ETF (NYSEArca: VOO).
“The reason is to maintain liquidity, so obviously one thing that is very important to us is to invest in the most liquid ETFs in their space,” Gus Sauter, Vanguard’s CIO, said in the report. “In that particular segment of the market, the SPDR is the most liquid. Even though we have a competing ETF, it’s not as liquid, so we are just trying to provide the best value for our clients.”
“A good rule of thumb is: The broader the potential instrument and asset classes a manager is allowed to use in a portfolio, the more likely they are to make use of ETFs,” consultant David Bauer, a founding partner with Casey Quirk & Associates LLC, said.
Additionally, ETFs are providing money managers the ability to gain market exposure to hard-to-reach areas.
ETFs are used “to provide efficient exposure to an asset class for small positions where there isn’t a mutual fund alternative, or where necessary to shift the portfolio’s asset mix quickly while keeping trading costs lows,” Brent Smith, CIO of Franklin Templeton’s multi-asset strategies, said in the article. [What is an ETF?]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.