Download Drivers for Growth Through 2020

Q2 2016
Global Trends in Institutional
ETF Adoption: Drivers for
Growth Through 2020
CO N TE NTS
3
Executive Summary
3
Setting the Stage for Growth
4
Five Underlying Drivers of ETF Growth
5
INSTITUTIONS ARE
ADOPTING ETFs FOR
AN EXPANDING LIST OF
PORTFOLIO APPLICATIONS
IN A GROWING NUMBER OF
ASSET CLASSES
INSTITUTIONAL
INVESTMENT IN
ETFs IS EXPECTED
TO GROW TO
$300B
Institutions Use ETFs for Specific
ANNUALLY BY 2020
Needs
6
ETFs Used for Critical Strategic
Functions
7
ETFs Emerge as a New Source
of Liquidity
9
BlackRock’s iShares Seen as Best-inClass Provider
ME T H O D O LO GY
Greenwich Associates interviewed a total of 408 institutional investors globally,
of which 253 were exchange-traded fund users and 155 were non-users, in
an effort to track and uncover usage trends. The respondent base included
137 institutional funds (corporate pensions, public pensions, foundations and
endowments), 141 asset managers (firms managing assets to specific investment
strategies/guidelines), 63 insurance companies, 20 investment consultants, and
11Conclusion
47 registered investment advisors (RIAs). RIAs are advisors or firms providing
investment advice/recommendations that are registered with the U.S. Securities
and Exchange Commission.
The Greenwich Associates growth model projects respondent data about assets
currently invested in ETFs and future plans for increasing usage, broadening
Consultant Andrew
usage, increasing holding periods, and adopting new products among users
McCollum advises on the
and non-users. Assumptions about current assets are based on BlackRock’s
investment management
2015 Global ETF Landscape report, while assumptions about levels and pace of
market globally.
future adoption are modeled on adoption levels observed through Greenwich
Associates ETF research over the past six years.
Interviews by Region
Global Average AUM in USD
Canada
Asia 13%
Europe
$43B
Asset Managers
12%
45% U.S.
Institutional Funds
$35B
Insurance Companies
$34B
30%
ETF users made up 62% of the
respondent base and non-users 38%
Note: Based on 408 respondents.
RIAs
$2B
Total AUM of respondents
combined is $11.9T
Note: Based on responses from 129 institutional funds,
122 asset managers, 61 insurance companies, and 43 RIAs.
Cover Photo: © iStockphoto/ooyoo
The data reported in this document reflect solely the views reported to Greenwich Associates by the research participants. Interviewees
may be asked about their use of and demand for financial products and services and about investment practices in relevant financial
markets. Greenwich Associates compiles the data received, conducts statistical analysis and reviews for presentation purposes in order
to produce the final results. Unless otherwise indicated, any opinions or market observations made are strictly our own.
© 2015 Greenwich Associates, LLC. Javelin Strategy & Research is a division of Greenwich Associates. All rights reserved. No portion
of these materials may be copied, reproduced, distributed or transmitted, electronically or otherwise, to external parties or publicly
without the permission of Greenwich Associates, LLC. Greenwich Associates,® Competitive Challenges,® Greenwich Quality Index,®
Greenwich ACCESS,™ Greenwich AIM™ and Greenwich Reports® are registered marks of Greenwich Associates, LLC. Greenwich
Associates may also have rights in certain other marks used in these materials.
2 | GREENWICH ASSOCIATES
Executive Summary
2015 was a record-breaking year for ETFs, which attracted more than $350 billion in new assets globally. Institutional
investors are primary contributors to the steady growth in ETF demand, and over the last five years Greenwich Associates
has conducted studies in the U.S., Europe, Asia, and Canada to identify the key trends behind their increasing ETF adoption.
In this paper we take a long-term view and explore how trends we are seeing today can be expected to impact ETF
demand in 2020. To arrive at projected growth in institutional ETF demand, we relied on survey data from the 2015 Global
Exchange-Traded Funds Study to identify five key trends driving global ETF demand. We then built a growth model
projecting ETF asset growth over the next five years. Using current asset levels as a starting point, the model examined
respondents’ future plans for increasing usage, broadening usage, increasing holding periods, and adopting new products
among ETF users and non-users.
By the year 2020, we expect the following five drivers will collectively produce approximately $300B in annual institutional
ETF flows:
1. The broadening use of ETFs across applications and asset classes will drive $132 billion in new demand in five years’ time.
2.The migration toward using ETFs to obtain core exposures and achieve strategic goals will produce $42 billion in
annual flows.
3. Liquidity needs will fuel demand for ETFs in fixed income, driving $68 billion in new annual flows.
4. Institutions using ETFs to replace derivatives positions will produce $28 billion in flows annually.
5. Innovative exposures like smart-beta ETFs will attract $25 billion in annual flows.
Setting the Stage for Growth
Over the five years we have conducted research in the ETF market,
Greenwich Associates has documented a clear and consistent pattern:
Institutions generally start investing in ETFs in equities and then
gradually begin to adopt them in fixed income and other asset classes.
This process is most advanced in North America, where institutional
investors in the U.S. and Canada emerged as early adopters. The results
of Greenwich Associates research in Europe and Asia suggest that
these institutional markets will follow a similar trajectory as the U.S. and
Canada, pushing annual growth to approximately $300 billion by 2020.
CURRENT VS. PROJECTED PORTFOLIO
ALLOCATIONS TO ETFs AMONG ETF USERS
30%
20%
25%
21%
20%
Projected (in 2020)
Current
15%
10%
10%
9%
0%
The results of this study show that institutions that invest in ETFs
allocate an average 15% of total assets to the funds. Reflecting both their
relatively long history of ETF investment and large equity allocations,
25%
2%
Canada
U.S.
Europe
Asia
Note: Based on 33 responses in Canada, 112 in the U.S., 60 in Europe,
and 27 in Asia.
Source: Greenwich Associates 2015 Canadian, U.S., European, and
Asian Exchange-Traded Funds Studies
EXPECTED CHANGE IN ALLOCATIONS TO EQUITY ETFs IN NEXT 12 MONTHS
35%
Global
5%
36%
U.S.
Europe
31%
Canada
33%
5%
6%
43%
Asia
Increase
5%
Decrease
7%
8%
59%
5%
55%
6%
7%
No change
53%
51%
46%
Don’t know
Note: Based on 230 global responses, 111 in the U.S., 58 in Europe, 33 in Canada, and 28 in Asia.
Source: Greenwich Associates 2015 Global, U.S., European, Canadian, and Asian Exchange-Traded Funds Studies
3 | GREENWICH ASSOCIATES
4%
Institutional ETF users
could allocate up to 25%
of total assets in North
America, 15% in Europe
and 10% in Asia, by 2020.
Canadian and U.S. ETF investors have amassed the biggest allocations
to the funds, at 21% and 20% of total assets, respectively. Average
allocations are considerably smaller among European ETF users, at 9% of
total assets, and Asian ETF investors at 2%.
TOP REASONS FOR USING EQUITY ETFs
Liquidity
79%
Based on current and expected growth rates, Greenwich Associates
projects that ETFs could make up 25% of total institutional assets in
North America, 15% in Europe and 10% in Asia by 2020.
Market access
77%
Speed of execution to gain
diversified exposure
69%
Equity portfolios will remain a key driver of growth in the short term.
Institutions that invest in equity ETFs cite a variety of reasons for doing
so, namely ETFs’ ease of use, liquidity, and simple market access. Also
cited as key benefits are speed of execution to gain diversified exposure,
single-trade diversification, attractive management fees, lower trading
costs relative to individual stocks, and the ability to avoid the need for
single-security analysis.
Single-trade diversification
69%
Attractive management fee
68%
ETFs will continue to attract new institutional investors. Among
institutions in this year’s study that do not invest in ETFs, 44% have not
yet considered using ETFs in their portfolios. This group of non-users
represents a large source of as-yet untapped demand.
87%
Easy to use
Lower trading costs vs.
individual stocks
53%
Avoid need for singlesecurity analysis
52%
0%
100%
Note: Based on 230 responses.
Source: Greenwich Associates 2015 Global Exchange-Traded Funds Study
Greenwich Associates has identified five global trends that will
contribute to the expansion of ETFs in institutional portfolios over the
next five years and beyond.
Five Underlying Drivers
of ETF Growth
1
INSTITUTIONS ARE ADOPTING ETFs FOR AN
EXPANDING RANGE OF APPLICATIONS IN A
GROWING NUMBER OF ASSET CLASSES
The versatility of ETFs allows institutions to apply them in myriad uses
across a growing range of asset classes. We estimate that this trend will
drive $132 billion in annual ETF asset growth by 2020.
In addition to the 95% of ETF investors using the funds in equity
portfolios, 60% currently employ ETFs in fixed income. Among asset
managers, that share reaches 70%. Bond ETF usage varies considerably
from market to market. About one-third of Asian ETF users invest in
fixed-income ETFs, compared with 68% of users in Canada and 82% of
European asset management ETF users.
Among ETF investors in the study, 35% use ETFs in commodities, and
34% use them in REITs. Again, the data reveals significant variation
across regional markets. For example, approximately half of Canadian
4 | GREENWICH ASSOCIATES
ETF USE BY ASSET CLASS, INVESTOR TYPE
100%
94%
Equity portfolio
93%
93%
62%
43%
Fixed income portfolio
70%
57%
49%
29%
Commodities
43%
18%
46%
28%
REITs
37%
30%
RIAs
Institutional funds
Asset managers
Insurers
0%
100%
Note: Based on 249 global responses including 39 RIAs, 65
institutional funds, 101 asset managers, and 44 insurers.
Source: Greenwich Associates 2015 Global Exchange-Traded Funds Study
MOST COMMON ETF APPLICATIONS
Global
U.S.
Europe
77%
Core allocation
71%
International diversification
70%
70%
Tactical adjustments
69%
67%
Portfolio completion
57%
Rebalancing
54%
Risk management/overlay management
37%
Cash equitization
36%
54%
39%
83%
14%
7%
Interim beta/Transition management
13%
16%
3%
100%
0%
57%
67%
64%
53%
52%
69%
33%
55%
69%
33%
67%
37%
16%
14%
0%
64%
37%
29%
100%
78%
28%
45%
Interim beta
0%
64%
36%
53%
23%
Transition management
Asia
84%
62%
48%
Liquidity management
Canada
44%
13%
47%
10%
25%
7%
8%
37%
22%
100%
13%
0%
100%
0%
100%
Note: Based on 252 global responses, 119 in the U.S., 67 in Europe, 36 in Canada, and 30 in Asia.
Source: Greenwich Associates 2015 U.S., European, Canadian and Asian Exchange-Traded Funds Studies
institutional ETF investors and 43% in the U.S. use ETFs in REITs. We have
observed that regions with lower usage levels steadily shift toward the
higher adoption levels in other regions over time.
From achieving core allocations and diversifying investment portfolios to
implementing tactical adjustments and rebalancing, institutions around
the world are finding a wide variety of uses for ETFs.
U.S. INSURANCE COMPANIES INVESTING
RESERVE ASSETS IN ETFs
71%
Institutions Use ETFs for Specific Needs
Institutions are also finding ways to use ETFs to meet needs specific to
their own businesses. For instance, insurance companies are using ETFs to
invest both general account reserve and surplus assets. In the U.S., the share
of insurers in the study using ETFs to invest surplus assets nearly doubled
from close to 30% in 2013 to almost 60% in 2014 before leveling off in 2015.
Meanwhile, the share of U.S. insurance companies using ETFs to invest
reserve assets climbed from just 6% in 2013 to 71% in 2015. It is possible that
we may see similar jumps among European and Asian insurers.
Given these high rates of adoption, insurance companies are emerging
as an important source of future ETF demand. Approximately half of
insurance company equity ETF investors expect to increase allocations
to these funds in the coming year, as do about a quarter of insurance
company bond ETF investors.
The study results reveal another potentially important source of future ETF
demand: the increasing popularity of multi-asset funds among investors
around the world. For asset managers running multi-asset funds, ETFs
represent a staple component of their portfolios.
5 | GREENWICH ASSOCIATES
26%
6%
2013
2014
2015
58% OF ASSET MANAGERS IN THE STUDY
EMPLOY ETFs IN MULTI-ASSET FUNDS
Other
30%
% of multiasset portfolio
33%
ETFs
Individual
37% securities
The extensive employment of ETFs in these funds represent an important
source of growth, as the use of multi-asset funds in the U.S. catches up
to that in the U.K. According to the results of the Greenwich Associates
2015 U.K. Institutional Investors Study, the use of multi-asset funds
among U.K. institutions has been on a steady climb, increasing from 22%
in 2012 to 40% in 2015. Currently, only 14% of U.S. institutions invest in
multi-asset funds—a usage rate Greenwich Associates expects to move
toward that now seen in the U.K.
2
STRATEGIC VS. TACTICAL ASSETS
62%
Global
68%
U.S.
Europe
Institutional investment in ETFs in markets around the world has
followed a consistent pattern: Institutions first experiment using ETFs for
short-term tactical applications, such as making temporary adjustments
to a portfolio, executing manager transitions or obtaining equity
exposure for short-term cash positions. Over time, many institutions
begin using ETFs for more complex, long-term and strategic functions.
Currently, institutional ETF holdings at the global level are dominated
by strategic assets; institutions estimate that 63% of ETF assets are
strategic in nature. Institutional funds and registered investment advisors
(RIAs) are leading the way in the strategic use of ETFs, with strategic
assets making up two-thirds and three-quarters of total ETF holdings,
respectively. Roughly half of RIA ETF investors report average holding
periods longer than two years, as do 44% of institutional funds. At the
opposite end of the spectrum, insurance companies say approximately
70% of their ETF holdings are tactical in nature.
ETFs Used for Critical Strategic
Functions
Based on data and trends from our past research on institutional ETF
investing around the world, Greenwich Associates expects growing
numbers of institutions to adopt ETFs for strategic functions like
obtaining core exposures and diversifying portfolios. Approximately
70% of institutional users employ ETFs for these purposes. Nearly half
the institutional ETF investors in the study use the funds for liquidity
management, also considered a strategic function, and 37% use ETFs
for risk management. Institutions currently using ETFs in these areas are
expected to expand their usage and allocations, which we estimate will
increase annual asset growth by approximately $42 billion.
32%
51%
49%
Canada
63%
Asia
65%
37%
35%
46%
Tactical
Strategic
GROWING NUMBERS OF INSTITUTIONS ARE USING
ETFs TO OBTAIN CORE INVESTMENT EXPOSURES
AND ACHIEVE OTHER STRATEGIC GOALS
38%
4%
Note: Based on 249 responses, including 121 in the U.S., 66 in
Europe, 35 in Canada, and 27 in Asia.
Source: Greenwich Associates 2015 Global, U.S., European,
Canadian, and Asian Exchange-Traded Funds Studies
TYPICAL ETF HOLDING PERIODS
37%
40%
30%
>2 years
47%
30%
20%
25%
14%
1–2 years
18%
17%
18%
15%
29%
7–12 months
9%
20%
20%
15%
24%
1–6 months
18%
33%
4%
5%
3%
<1 month
9%
0%
0%
Global
U.S.
50%
Europe
Canada
Asia
Note: Based on 247 global responses including 117 in the U.S.,
66 in Europe, 34 in Canada, and 30 in Asia.
Source: Greenwich Associates 2015 Global, U.S., European,
Canadian, and Asian Exchange-Traded Funds Studies
6 | GREENWICH ASSOCIATES
3
LIQUIDITY NEEDS WILL FUEL INSTITUTIONAL
DEMAND FOR FIXED-INCOME ETFs
We believe the continued thinning liquidity in fixed-income markets
coupled with limited bond dealer inventories could set the stage for an
increase in institutional demand for bond ETFs. Our models estimate
$68 billion annually in new assets by 2020.
Although ETFs appear in a large number of portfolios, institutions that
use bond ETFs invest an average of only 17% of total fixed-income assets
in the funds. European users of bond ETFs are well below that global
average, with allocations of just 9.3% of total fixed-income assets. In
stark contrast, Canadian bond ETF users invest 25% of fixed-income
assets in ETFs. In Asia, where bond ETF investing has a shorter history,
bond ETFs comprise only 1.4% of fixed-income assets in the funds.
Given the large legacy fixed-income portfolios among institutions in
Europe and Asia, even incremental growth in these allocations or the
share of institutions investing in bond ETFs would represent significant
levels of asset growth. That growth appears to be on the way. Among
current bond ETF investors in the study, 28% plan to increase allocations
to the funds in the coming year, including more than one-third of
institutional funds. Of the institutions planning increases, 33% expect to
boost fixed-income allocations by more than 10%.
TOP REASONS FOR USING
FIXED-INCOME ETFs
83%
Easy to use
Liquidity
80%
Quick access
78%
72%
Single-trade diversification
68%
Low management fees
Lower trading costs vs.
cash bonds
57%
Avoid need for singlesecurity analysis
55%
0%
Bond ETFs also are attracting new users in markets like Europe, where
30% of the fixed-income ETF users in the study have been investing in
these funds for less than two years. Approximately 15% of the non-ETF
users in the study say they are likely or somewhat likely to invest in bond
ETFs in the next 12 months.
ETFs Emerge as a New Source
of Liquidity
Institutional investments in bond ETFs could get a significant boost
in coming years from widespread investor concerns about liquidity
shortages. New bank capital reserve requirements and other regulations
in Europe and the U.S. have forced major fixed-income dealers to pull
back from their traditional role of market makers.
This pullback has drained liquidity from global bond markets, making
it harder for investors to find securities and execute trades. Liquidity
shortages are starting to affect institutional investment strategies, with
increasing numbers of investors reporting that they are now forced to
take liquidity into account when determining asset allocations and other
aspects of their portfolios.
7 | GREENWICH ASSOCIATES
100%
Note: Based on 148 responses.
Source: Greenwich Associates 2015 Global Exchange-Traded Funds Study
SINCE 2008, BOND
ETF LIQUIDITY IN
THE U.S. HAS GROWN
5.1x
Meanwhile, ETF liquidity has expanded rapidly and dramatically. Since
2008, bond ETF liquidity in the U.S. has grown 5.1x, or 31% annually.1
Among institutional bond ETF users in the study, 70% say they invest in
the funds for liquidity. Only “ease of use” gains a comparable number
of citations, making these factors institutions’ top two reasons for using
fixed-income ETFs.
4
“ETFs are often cheaper
than futures and
easier than single shares.”
– Asset Manager
INSTITUTIONAL INVESTORS ARE USING ETFs
TO REPLACE DERIVATIVES POSITIONS
Institutions globally are starting to replace existing derivatives positions
in their portfolios with ETFs. This trend is expected to continue, with an
estimated $28 billion in new ETF assets in 2020 attributed to institutions
switching from derivatives. As they gain increasing experience with
the funds, institutions are discovering that ETFs represent an effective
source of beta. Roughly half the institutions and two-thirds of the asset
managers in the study use futures to access beta, with 53% of futures
users employing the products for hedging and 28% using them for fully
funded long positions.
Approximately one-third of institutions in the study shifted from
derivatives products to ETFs in the past year.2 About a quarter of
institutions made that move to benefit from the operational simplicity of
ETFs, and 15% switched due to lower costs.
Looking ahead, 46% of institutions in the study intend to replace
existing equity futures positions with ETFs in the coming year. Another
1 in 5 expect to replace a futures position with ETFs in fixed income
and 11% plan to do so in commodities. About another quarter of study
participants say they will evaluate futures positions for potential
replacement with ETFs over the coming year. Of those who expect to
replace derivative positions with ETFs in the next year, 44% say they will
do so to lower fees and overall costs, and a quarter say they will do so to
benefit from ETFs’ ease of use, implementation and trading.
5
INNOVATIVE FUND TYPES LIKE SMART-BETA ETFs
ARE PROVIDING NEW WAYS FOR INVESTORS TO
OBTAIN DESIRED INVESTMENT EXPOSURES
Among existing institutions already investing in non-market-cap
weighted/smart-beta ETFs, 51% expect to increase allocations to these
funds in the coming year. That share tops two-thirds among RIAs and
70% among insurance companies. An impressive 42% of institutions
planning to expand these allocations expect to increase them by more
than 10%. Taking into account current users and institutions that are
considering non-market-cap weighted/smart-beta ETFs, we project
institutional ETF assets to rise by $25 billion by 2020.
1
2
BlackRock, Bloomberg, based on the cumulative annual trading volume of all U.S.-listed
fixed-income ETFs, as of 12/31/15.
*This data has been re-stated since initial publication.
8 | GREENWICH ASSOCIATES
REPLACING DERIVATIVES WITH ETFs
Over the next 12 months do you expect to:
17%
39%
Replace existing equity
futures positions with ETFs
50%
56%
50%
17%
Replace existing fixed income
futures positions with ETFs
18%
19%
17%
22%
Replace existing commodity
futures positions with ETFs
6%
6%
17%
22%
Evaluate futures positions for
potential replacement with ETFs
26%
19%
RIAs
Institutional funds
Asset managers
Insurers
0%
60%
Note: Based on 251 global responses including 40 RIAs, 65 institutional
funds, 102 asset managers, and 44 insurers.
Source: Greenwich Associates 2015 Global Exchange-Traded Funds Study
USE OF SMART-BETA ETFs AND TYPES USED
Across both retail and institutional channels, innovation on the part
of ETF providers is attracting new investors and assets. New fund
structures like smart-beta or non-market-cap weighted ETFs provide
investors with alternative means of capturing beta exposures and
meeting specific needs, like minimizing volatility. Thirty percent of the
institutional ETF users in the study invest in non-market-cap weighted/
smart-beta ETFs.
Minimum-volatility ETFs are the most popular product among this group,
with 69% investing in the funds. Approximately 58% of the institutions
using non-market-cap weighted ETFs invest in equal-weighted ETFs
and/or multi-factor ETFs, and 44% invest in single-factor ETFs.
Forty-eight percent of ETF users are considering making an investment
in minimum-volatility ETFs in the coming year, between 40% and 45%
are considering an investment in multi-factor and/or single-factor ETFs,
38% are contemplating an investment in equal-weighted ETFs, and a
quarter are considering an investment in smart-beta fixed-income ETFs.
30%
use
Smart-Beta
ETFs1
Types of Smart-Beta/Factor ETFs Used2
69%
Minimum-volatility ETFs
Equal-weighted ETFs
58%
Multi-factor ETFs
57%
44%
Single factor ETFs
Smart-beta fixed income
18%
Smart-beta commodities
17%
3%
Dividend
8%
Other
BlackRock’s iShares Seen
as Best-in-Class Provider
Institutions around the world consider a wide range of factors when
selecting a specific ETF in which to invest. As adoption grows and ETFs
assume more important roles in institutional portfolios, investors become
more discerning and consider a wider range of criteria when selecting
an ETF or an ETF provider.
The No. 1 question asked by institutions when reviewing a specific ETF
for investment is, “Does the ETF match my exposure needs?” This factor
is cited as an important selection criterion by 80% of ETF users in the
Greenwich Associates study. Liquidity/trading volume ranks second in
those terms, followed by expense ratio and performance of the fund,
including tracking error.
Based on these factors, iShares, the ETF division of BlackRock, ranks as
by far institutions’ preferred provider of ETFs. Among institutional ETF
users in the study, 92% use iShares as a provider, followed by Vanguard
at 56% and State Street/SPDRs at 53%. While Vanguard is cited for
providing the lowest management fees, institutions name iShares as
best-in-class in ETF liquidity, range of product offerings, index tracking,
innovation, product transparency, and service platform.
9 | GREENWICH ASSOCIATES
0%
70%
Note: 1Based on 248 responses. 2Based on 72 responses.
Source: Greenwich Associates 2015 Global Exchange-Traded Funds Study
CANADIAN INSTITUTIONS
LEAD THE WAY IN ETF
INVESTMENTS
Canadian institutions are emerging
as some of the most active and
sophisticated users of ETFs in global
institutional markets. Canadian
institutions that use ETFs invest a
relatively large 21% of total assets in
the funds, and sizable shares of both
equity and fixed-income ETF users
expect to increase those allocations
in the coming year.
This trend reflects a consistent
expansion in how institutions use
ETFs. Canadian institutions in
the study cite no fewer than 29
applications for ETFs within their
portfolios. Topping the list are
critical strategic functions, such
as international diversification and
obtaining core investment exposures.
MOST IMPORTANT FACTORS WHEN SELECTING AN ETF
(Criteria cited as “Very Important”)
Global
U.S.
Matches exposure needs
80%
Liquidity/trading volume
77%
Expense ratio of fund
Performance of fund (tracking error/
tracking difference)
Europe
82%
Asia
83%
76%
74%
76%
82%
70%
77%
72%
72%
78%
76%
68%
68%
73%
59%
NAIC rating
Canada
59%
Assets under management of ETFs
41%
33%
Benchmark used/Benchmark provider
36%
34%
Fund company and management behind
the funds
35%
39%
Quality of service offered by
fund provider
23%
20%
Breadth of ETF offerings
22%
22%
0%
100%
0%
0%
62%
68%
0%
48%
65%
27%
22%
55%
38%
32%
45%
19%
22%
0%
0%
35%
36%
100%
58%
16%
16%
100%
24%
0%
100%
0%
100%
Note: Based on 258 responses.
Source: Greenwich Associates 2015 Global Exchange-Traded Funds Study
PROPORTION OF RESPONDENTS USING EACH ETF PROVIDER*
Global
U.S.
Europe
92%
iShares/BlackRock
Vanguard
56%
State Street/SPDRs
53%
PowerShares
34%
Deutsche X-trackers/DBX Trackers
29%
Canada
94%
91%
73%
92%
24%
64%
31%
45%
18%
5%
6%
WisdomTree
11%
17%
0%
8%
Lyxor
10%
0%
43%
100%
0%
100%
Note: *Other mentions included BMO, Van Eck, UBS, Amundi, Horizons, First Trust, and Nomura. Based on 242 responses.
Source: Greenwich Associates 2015 Global Exchange-Traded Funds Study
10 | GREENWICH ASSOCIATES
43%
11%
12%
100%
64%
39%
62%
0%
39%
44%
5%
18%
82%
64%
PIMCO
0%
Asia
25%
4%
11%
0%
0%
0%
100%
0%
100%
Conclusion
Greenwich Associates expects institutional investments in ETFs to grow
to approximately $300 billion per year by 2020, with ETF allocations
climbing to 25% of total institutional assets in North America, 15% in
Europe and 10% in Asia by 2020.
The results of this study suggest future growth of ETFs in the
institutional channel will be driven by the continued discovery of new
and more sophisticated applications for the funds across investment
portfolios. These applications will include the replacement of less costeffective futures positions and the achievement of core exposures critical
to institutional investment strategies. In fixed income, gradual increases
in adoption and allocation among users should result in slow but steady
growth. That growth rate could accelerate if liquidity shortages in fixedincome markets around the world trigger an increase in institutional
demand for ETFs.
The intersection of an
increasingly diverse slate
of institutional needs and
the inherent flexibility of
the ETF structure will spur
the spread of the funds
into new areas and asset
classes.
While institutional equity portfolios will remain a major source of growth
for some time to come, the intersection of an increasingly diverse slate
of institutional needs and the inherent flexibility of the ETF structure
will spur the spread of the funds into new areas and asset classes. That
process is already evident in the expanding use of ETFs in insurance
company portfolios and in the widespread use of ETFs by asset
managers launching new products to meet growing worldwide demand
for multi-asset funds. Finally, Greenwich Associates expects innovation
among product providers to fuel additional growth, as institutions find
applications within their portfolios for smart-beta ETFs and other new
funds types.
EXPLORING ETF USE BY REGION
For a detailed look into local trends in ETF use at the regional
level, please see our 2015 reports examining the institutional ETF
markets in Asia, Europe, the U.S., and Canada.
JJ
ETFs Take Root in Asian Institutional Portfolios
JJ
ETFs in the European Institutional Channel: 5 Key Trends
JJ
Institutional Investment in ETFs: Versatility Fuels Growth
JJ
Versatility Fuels Expansion: ETFs in Canadian Institutional
Portfolios
greenwich.com [email protected] Ph +1 203.625.5038 Doc ID 16-2017
Reprinted with permission of Greenwich Associates, LLC, May 2016. The opinions expressed in this reprint are intended to
provide insight or education and are not intended as individual investment advice.
Carefully consider the iShares® Funds’ investment objectives, risk factors, and charges and expenses before investing. This
and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be
obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing. Investing
involves risk, including possible loss of principal.
Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences.
There can be no assurance that an active trading market for shares of an ETF will develop or be maintained. Shares of the
iShares Funds may be sold throughout the day on the exchange through any brokerage account. However, shares may only
be redeemed directly from a Fund by Authorized Participants, in very large creation/redemption units.
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or
solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies
discussed will be effective.
This study was sponsored by BlackRock.
The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”). BlackRock is not
affiliated with Greenwich Associates, LLC, or its affiliates.
iSHARES and BLACKROCK are registered trademarks of BlackRock. All other marks are the property of their respective
owners. iS-18325-0516
FOR INSTITUTIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION