ETFs are becoming the investment vehicle of choice for Canadian institutional investors, suggests a new report from U.S. research firm Greenwich Associates.
The report, which is based on a survey of 53 Canadian institutional investors, found that they’re increasingly turning to ETFs. Of the firms that use ETFs, on average, 16% of total assets under management (AUM) are devoted to ETFs — and that allocation is projected to grow
Specifically, the Greenwich report found that 28% of equity ETF users intend to increase their allocations in the coming year, as do 25% of fixed-income ETF users.
“That growth could accelerate due to increasing skepticism among institutions about the ability of active management strategies to add value in large liquid markets,” the report says.
Yet, the ongoing active vs passive debate isn’t the only factor driving the growth in ETF usage. Greenwich also found that institutions are looking to so-called “smart beta” ETFs to help provide new sources of return and to help manage volatility.
In addition, approximately 30% say they using ETFs as a source of diversification and 80% of bond ETF users cite concerns about bond market liquidity as a reason for using ETFs.
“Institutions in Canada are integrating ETFs into nearly every aspect of their portfolios, across asset classes, and into critical functions like risk, volatility and liquidity management,” says Greenwich Associates consultant, Andrew McCollum, in a statement.
Finally, the research found that Canadian institutions say that their primary considerations for a potential ETF investment include the degree to which a fund matches their exposure needs, liquidity/trading volume, the expense ratio and performance/tracking error.
Photo copyright: melpomen/123RF