Insurers Scoop Up ETFs Boosting Liquidity for ETF Owners

Nearly a third of insurance companies used ETFs in 2018 with 372 million shares held, largely seen as a confidence booster for ETF investors as large institutional investors increase their ETF exposure.

The data comes from a new report, “ETFs in Insurance General Accounts – 2019.” It finds that among insurance companies, ETF shares are up 7% from the prior year, even as assets under management decreased 3%.

As more insurance companies take to ETFs, that’s going to increase the liquidity profile for all different investors and lower overall trading costs, which are a really important part of overall cost of ownership, Matthew Bartolini, managing director and head of SPDR Americas Research at State Street Global Advisors, told CNBC.

Insurance companies gravitated toward liquid-oriented ETFs including:

“These are products that are focused more from the institutional marketplace that saw strong inflows net demand during 2018,” Todd Rosenbluth, CFRA Head of ETF & Mutual Fund Research, told CNBC. “What’s different about what they are doing is they are focusing more on trading volume and liquidity than they are on expense ratio which has been a much more popular metric for a retail oriented investor.”

Experts like Rosenbluth see insurers sticking to their current strategy as opposed to investing in funds that are less liquid and could pose more risk.

“The products they are investing in are plain vanilla oriented, market cap weighted, equity and fixed income products,” he said.

Full Steam Ahead for Institutional Oriented Investors?

While demand for ETFs is increasing for institutional oriented investors like hedge funds and private banking, it’s still a sliver of the overall asset base for insurance companies at less than 1%.

That said, analysts like Bartolini see a steady rate of growth as early trends have suggested.

“We’ve seen a pick up from 2016 to 2018,” Bartolini noted. “The percentage is probably going to increase in a linear fashion to maybe two, three, four or five percent by the time we get two to three years out, particularly with that growth coming from fixed income ETFs, as regulatory changes have become more appealing to insurance companies.”

Learn more about popular ETFs like SPY in our Popular ETFs section.