“Existing institutional users are finding new applications for ETFs in their portfolios, and a growing number are using ETFs as a primary vehicle to implement long-term strategies,” according to the report. “The most popular application for ETFs within institutional portfolios is obtaining core exposures — undoubtedly a strategic function.”
About 35% of fixed-income ETF users expect to add allocations this year, with 36% planning boost allocations by 10% or more.
“Fixed income ETF use is expanding: 65% percent of institutional ETF users employ the funds in fixed income,” according to Greenwich Associates. “Liquidity issues have led many institutions to adopt fixed income ETFs, as ETF liquidity has increased dramatically over the same period.”
Over half of the institutions are also replacing traditional derivatives products with ETFs in the past year, and 78% of futures users plan to replace existing futures postilions with ETFs over the next year.
Smart-beta strategies, or ETFs that track alternative indexing methodologies, have been gaining popularity among institutional investors, with 30% of institutions employing a smart-beta ETF and an equal percentage are using currency hedged ETFs.
Max Chen contributed to this article.