Exchange traded funds are valuable and versatile tools in diversifying and managing an investment portfolio. This particular aspect has not gone unnoticed among institutional investors as they have quickly adopted the investment vehicles, increasingly putting more assets to work in ETF products.
According to a press release, a Greenwich Associates study found that a significant number of institutional investors, including corporate and public pension funds, foundations and endowments, utilize ETFs for manager transitions and cash equitization management. [ETFs or Mutual Funds: Why Not Both?]
For instance, 78% of asset managers and 44% of pensions, foundations and endowments implement ETFs for cash equitization. Meanwhile, 61% of asset managers and 55% of institutional funds trade ETFs for manager transitions.
“The Greenwich Associates study confirms the wide range of ETF usage we hear from and discuss with our institutional clients,” Daniel Gamba, Head of Americas iShares Institutional Business at BlackRock, said in the press release. “Institutional investors are expanding the types of ETF applications with a marked increase in liquidity management and portfolio completion.”
Additionally, the study discovered that 31% of institutional funds and 33% of asset managers are using ETFs to add liquidity to a portfolio and to reduce trading costs. Usage among both groups is up 10% in 2011.
“Liquidity has become a governance issue since the global financial crisis. Institutional investors are applying their acquired knowledge from that period to their search for effective liquidity solutions. ETFs can be an effective tool for them,” Liz Tennican, Head of US Institutional Sales for iShares at BlackRock, added. “We are finding that institutional investors are expanding the types of asset classes when they utilize ETFs, for example, expanding further into international single countries and U.S. and international fixed income.”
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.