ETFs gain traction in US institutional market

ETFs are making inroads in the US institutional space, despite being typically thought of as a retail product in the US, according to a new survey by consultant Greenwich Associates.

About 14% of pension funds, endowments and foundations use ETFs in their portfolios, while institutional investors account for half of all ETF assets invested in the US.

US plan sponsors mainly use ETFs to make tactical adjustments to their portfolios or to gain exposure to certain markets while transitioning assets from one manager to another.

Nearly 30% use ETFs to gain passive exposure in a core-satellite portfolio and about 25% use them "for more general portfolio completion," Greenwich says.

Greenwich surveyed 43 plan sponsors and 27 money managers to get a sense of how they use ETFs within their portfolios.

Nearly 55% of all institutions currently using ETFs say they plan to increase their use of these vehicles over the next three years.

However, 30% of institutions that do not use ETFs say they do not have enough familiarity with them.

Greenwich consultant Chris McNickle says: "Providers should take it upon themselves to educate both investment consultants and institutions directly about the various ways ETFs can be used in managing an institutional portfolio."