Potential concerns about ETFs may be fueling caution among institutional ETF acceptance, with respondents pointing to “mindless momentum buying,” “threat,” and “concentrator” as causes for concern. Institutions were concerned with an ETF’s underlying index or construction methodology, secondary market trading liquidity and costs.
Why liquidity is not a concern to institutional investors
Liquidity is less of a concern with institutional investors as 66% of participants revealed they would rather own ETFs with the most precise exposure than the most liquid access.
Respondents, though, also showed stubbornness with their ETF picks as they were overwhelmingly concerned with underlying index exposure when picking an ETF, with more than half of respondents indicating they would rather not switch to a new ETF even if it offered more precise exposure.
Overall, institutional investors surveyed revealed a positive outlook for ETFs as just 3% of participants indicated they would use ETFs less in 2018 compared to 2017.
For more information on the ETF market, visit our ETF Performance Reports category.