Large Institutions Continue To Make Their Move Into ETF’s
“Exchange-traded funds, once the purview of retail and small institutional investors, are increasingly flowing into the investment portfolios of larger institutions globally,” Thao Hua Reports From Pensions & Investments.
“Either allocated through their outside money managers or directly invested by an internal staff, ETFs are becoming more of an option for large institutions to implement certain passive strategies. They prefer the quick access of ETFs compared to a separate account and the added transparency compared to a derivatives approach using, for example, futures,” Hua Reports.
Hua continues saying “Global ETF assets under management totaled $891 billion at the end of August, a 25.3% increase from year-end 2008. Institutions were likely a big contributor to that growth. ” The reason: broader shifts back to basics and passive management, according to Steve Cook, managing director and global product manager for ETFs at the Bank of New York Mellon, New York.
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“The competition between ETFs and (separate accounts) will only increase” as the expense ratio for ETFs is dropping, Mr. Cook said. The average ETF expense ratio was 32 basis points at the end of May compared with 52 basis points two years earlier, according to data from Morningstar Inc. and Barclays Global Investors.
In the derivatives market, “what you saw is that investors became more nervous about collateral and counterparty risks, and ETFs offered a way to get the same exposure,” he added. “They get liquidity, they can get out immediately and they know exactly what their exposure is.”
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