Institutions are also showing greater interest toward smart-beta ETF strategies that implement active styles in a passive index-based wrapper.
Greenwich Associates pointed to five factors that will continue to support institutional flows: First off, the broadening use of ETFs will drive $132 billion in new demand in five years’ time. The shift toward ETFs to obtain core exposure and hit strategic, long-term goals will bring in $42 billion in annual flows.
Attractive liquidity will also fuel demand for fixed-income-related ETFs, driving $68 billion in new annual flows. ETFs as an alternative to derivatives will generate $28 billion in flows annually. Lastly, innovative strategies, like smart-beta ETFs, will continue to attract $25 billion in annual flows.
Adoption in the U.S. has been notably strong. Institutions have allocated an average 20% of assets to ETFs, according to the research note, compared to 9% among European investors and 2% in Asia.
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