Some institutional investors have increasingly turned to ETFs as low-cost alternatives to options and derivatives to hedge market positions as increased financial regulation raised the cost of trading derivatives. [ETFs Begin to Muscle in on Derivatives Market]

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The ETF industry may still gain ground among institutional investors as many have not fully expanded into ETF options. For instance, hedge funds are only just beginning to adopt more asset classes, notably commodity ETFs. Pension funds have largely stuck to equities. Meanwhile, insurance companies have only recently begun using ETFs and typically focused on fixed-income options – percentage of U.S. insurers investing reserve assets in ETFs has increased from just 6% in 2013 to 71% in 2015.

Hedge funds and brokers lean toward State Street’s SPDR ETFs due to their deep liquidity. For instance, the SPDR S&P 500 ETF (NYSEArca: SPY), which has $181.6 billion in assets under management and an average daily volume of 128.8 million shares, has been a fan favorite.

On the other hand, investment advisors who are more strategic with their allocations have focused on fees and tracking of the underlying assets. Consequently, advisors have favored ETFs from the Vanguard Group. For instance, the Vanguard 500 Index (NYSEArca: VOO) has attracted inflows last year while SPY saw outflows, which suggests that some long-term investors may be switching to the cheaper 0.05% expense ratio found in VOO, compared to the 0.09% fee for SPY.