“The cost of holding a Eurostoxx 50 future, for example, has climbed from an average of 0.07% of the contract value since 1998, to an average of 0.45% over the last year,” reported Juliet Samuel for the Wall Street Journal, citing BlackRock (NYSE: BLK) data, in 2015.
BlackRock, parent company of iShares, the world’s largest ETF issuer, is looking to expand its footprint in the European ETF market by convincing traders to drop more expensive derivatives products for ETFs. [iShares Looks to Expand in Europe]
The move to ETFs over derivatives comes as part of a broader increase in ETF usage by institutional investors. Earlier this year, a study conducted by Greenwich Associates and sponsored by BlackRock said 46% of institutional ETF investors surveyed allocate 10% or more of total assets to ETFs with 47% saying they expect to boost ETF usage over the next year.
In a note out Monday, Mark Wiedman, global head of iShares, said, “Institutional investors accelerated use of ETFs as substitutes for futures and swaps in 2015. As banks’ balance sheet costs have ratcheted up, so too has the cost of using futures and swaps. ETFs are now typically a more efficient substitute for major global equity indices and for bond indices like credit derivatives. For instance, S&P 500 futures averaged approximately 56 bps over the last year, while our iShares Core S&P 500 ETF (NYSEArca: IVV) in the U.S. only costs 7 bps.”
Tom Lydon’s clients own shares of IVV.