ETF liquidity is sparking thanks to institutional investors. Many now look at ETFs as risk management tools and will likely support further asset growth in the nifty investment vehicle.
“Institutional usage of ETFs is growing and sparking increased liquidity in ETFs as an asset class,” according to Keefe, Bruyette & Woods.
KBW argued that while institutional investors have been slow in adopting ETFs, there may be significant room for further growth in institutional ETF usage now that they have gotten a taste.
According to KBW’s Inaugural Institutional ETF Survey, institutional investors have a positive view of ETFs and primarily utilize ETFs as trading tools and for their low-cost structure. Around 81% of respondents pointed to risk management as the key reason for utilizing ETFs, followed by their low-cost structure as the second-most cited factor at 47%.
While mom and pop investors may see ETFs as core components of a diversified portfolio, relatively few institutional investors use ETFs as portfolio investments. About 30% of survey participants use ETFs for asset allocation. Around 53% said they were not invested in ETFs and 47% had less than 10% of AUM invested in ETFs.