Exchange traded funds help the average investor easily gain access to more areas of the market. Institutional investors, though, have utilized the investment tool to quickly take advantage of the current market environment to put on “risk off” and “risk on” trades.
According to a Credit Suisse Trading Strategy survey, over half of institutional investors surveyed were using ETFs more in the past year, about 30% were increasing their use because of the risks in single stock picks and over a 25% will continue to use ETFs even if the steep risk-on/risk-off swings diminish, reports Chris Flood for Financial Times. [What the ETF Flows Show: Different Shades of Risk Taking]
Phil Mackintosh, global head of trading strategy at Credit Suisse, points out that ETFs are suited for a play on the macroeconomics as single stock picks offered paltry alpha generation.
“In this macro-driven world, it is no surprise that ETF trading has grown to the current high levels activity – representing $1-in-$4 traded in the US stock market recently,” Mackintosh said in the article.
Nevertheless, many mutual funds have not jumped on the ETF bandwagon – one-third of those surveyed have not included ETFs. Meanwhile, 7% of the participants acknowledged they were “almost exclusively” using ETFs.
The Credit Suisse survey also revealed that hedge funds and portfolio managers continue to see numerous macroeconomic risks like the Eurozone crisis and U.S. “fiscal cliff,” which have contributed to the decline in trading volumes. For the first seven months of the year, U.S. equities saw $156 billion in average daily traded values, or down 10.3% for the same period year-over-year. Credit Suisse said 83% of those surveyed indicate it would take between two to five years for trading volumes to recover.
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Max Chen contributed to this article.