Institutions' Growing Use of ETFs Underscores Funds' Versatility and Value
Annual Greenwich Associates study documents higher ETF allocations for traditional uses and new uses such as liquidity management.
SAN FRANCISCO -- May 16, 2012 - Institutional investors report they are increasingly turning to Exchange Traded Funds (ETFs) to facilitate a variety of essential fund management practices, a study released by Greenwich Associates today shows. The results reveal that once institutions integrate ETFs into their standard manager transitions or cash equitization processes, they quickly use ETFs for additional applications, such as for liquidity management.
The trends in institutional investors' use of ETFs are documented in year-over-year changes in the behaviors of corporate and public pension funds, foundations and endowments – all collectively referred to as "institutional funds" – and asset management firms as reported by the independent research firm Greenwich Associates. The study, in its third year and sponsored by iShares, reports that a significant number of institutional investors use ETFs for manager transitions and cash equitization management. Seventy-eight percent of asset managers and 44% of pensions, foundations and endowments use ETFs for cash equitization. Sixty-one percent of asset managers and 55% of institutional funds use ETFs for manager transitions.
"The Greenwich Associates study confirms the wide range of ETF usage we hear from and discuss with our institutional clients," said Daniel Gamba, Head of Americas iShares Institutional Business at BlackRock. "Institutional investors are expanding the types of ETF applications with a marked increase in liquidity management and portfolio completion."
The recent adoption of ETFs as a tool for liquidity enhancement demonstrates how institutional investors are applying ETFs in new ways to solve problems. Thirty-one percent of institutional funds and one-third of asset managers are now employing ETFs as part of an ETF overlay or sleeve to add liquidity to a portfolio and/or to reduce implementation and trading costs. That usage rate is up from just one in 10 among both groups in 2011.
"The marked increase in the use of ETFs for liquidity management is a significant development, reflecting sharper focus by institutions to assert control over their operational abilities during periods of irregular market conditions," said Liz Tennican, Head of US Institutional Sales for iShares at BlackRock. "Liquidity has become a governance issue since the global financial crisis. Institutional investors are applying their acquired knowledge from that period to their search for effective liquidity solutions. ETFs can be an effective tool for them."
As institutional investors use ETFs more strategically, they also apply ETFs to portfolio completion. This year, 28% of asset managers and 42% of institutional investors use ETFs for portfolio completion. Last year, approximately just one-in-five institutional investors used ETFs for portfolio completion.
Ms. Tennican said, "We are finding that institutional investors are expanding the types of asset classes when they utilize ETFs, for example, expanding further into international single countries and U.S. and international fixed income."
The Greenwich Associate study identified iShares as the most widely used ETF provider by institutional investors. Among participants, nearly 90% of institutional investors and asset managers identified iShares ETFs as among their portfolio holdings. iShares was most frequently cited for "best range of products," "strong servicing platform," and "providing liquid products."
Mr. Gamba noted that the trend toward expanded uses of ETFs by U.S. institutions reinforces iShares approach to serving the institutional investment community.
"Our efforts are largely educational in nature, helping institutional investors to identify and evaluate all of their investment options in order to achieve their specific objectives," said Mr. Gamba. "iShares ETFs are often the way to put money to work quickly. We have developed a wealth of information about ETFs and have portfolio and trading expertise to help support institutional investors independent analysis of ETFs."
The study was conducted between February and April 2012 through live, one-on-one interviews between Greenwich Associates and representative of U.S. pensions funds, endowments, foundations and asset management companies. All participants were from organizations that include ETFs among their portfolio holdings.
About BlackRock: BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At March 31, 2012, BlackRock’s AUM was $3.684 trillion. BlackRock offers products that span the risk spectrum to meet clients' needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. Headquartered in New York City, as of March 31, 2012, the firm has approximately 9,900 employees in 27 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia, and the Middle East and Africa. For additional information, please visit the Company's website at www.blackrock.com
About iShares: iShares is the global product leader in exchange traded funds with over 500 funds globally across equities, fixed income and commodities, which trade on 20 exchanges worldwide. The iShares Funds are bought and sold like common stocks on securities exchanges. The iShares Funds are attractive to many individual and institutional investors and financial intermediaries because of their relative low cost, tax efficiency and trading flexibility. Investors can purchase and sell shares through any brokerage firm, financial advisor, or online broker, and hold the funds in any type of brokerage account. The iShares customer base consists of the institutional segment of pension plans and fund managers, as well as the retail segment of financial advisors and high net worth individuals.
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