It is widely known that institutional investors are increasingly embracing ETFs. Various data points and studies confirm as much.
For example, a report published earlier this year, “Institutional Investment in ETFs: Versatility Fuels Growth” from Greenwich Associates, commissioned by BlackRock, the world’s largest issuer of exchange-traded funds, said institutional investors will continuing boosting use of ETFs.
Greenwich surveyed 183 institutional investors regarding their ETF use, including 41 asset managers, 51 institutional funds (pensions, endowments and foundations), 47 RIAs, 24 insurance companies and 20 investment consultants.
Count insurance companies among the institutional investors expected to ratchet up their use of ETFs. In 2015, insurance companies held $15.4 billion in ETFs in their general accounts, compared to $14.1 billion in 2014 and $13.0 billion in 2013, according to the National Association of Insurance Commissioners (NAIC).
Insurers’ preferences for traditional beta-index ETFs may be not all to surprising as they are considered more conventional investment plays. Moreover, these funds may have garnered a high-quality, risk-based capital NAIC designation. The higher the quality, the less capital insurers will be required to back up the investment.
Insurance providers are “turning to ETF strategies like smart beta, which use computer models to augment passive holdings and promise to replicate everything a talented stock picker brings to the table except the emotions and fees. What’s more, demand for the newest smart beta product — multifactor ETFs — is strongest among insurers than any other investor class, according to the Greenwich Associates study,” reports Bloomberg.
Among the top insurers with ETF holdings, USAA Insurance Group held $1.6 billion in ETF assets, including large positions in Vanguard Short-Term Bond ETF (NYSEArca: BSV), iShares Core MSCI EAFE ETF (NYSEArca: IEFA) and SPDR S&P 500 ETF (NYSEArca: SPY).
“Insurance companies owned $15.4 billion of exchange traded funds in their general accounts at the end of 2015, up from $14.1 billion in 2014 and $13.0 billion in 2013, according to National Association of Insurance Commissioners (NAIC) data gathered by S&P Global Market Intelligence. Insurance companies only hold 1.3 percent of their surplus as regards policyholders in ETFs, but usage has become prevalent and is likely to increase given the wide array of low-cost passive products that can support both broad and narrow investment strategies,” said S&P Capital IQ in a note out earlier this year.
USAA has about $1.6 billion allocated to ETFs, according to Bloomberg.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.