Institutional Investors Dominate Equity ETF Space

The institutional market segment held almost one-half (49%) of total equity ETF assets, according to Strategic Insight’s report, “ETF Trends by Channel and Investor Type – 2012.” Institutional presence was heaviest within international equity ETFs, accounting for 57% of total assets.

“What’s really driving the heavy international equity use is the emerging markets piece,” Dennis Bowden, assistant director of U.S. research at Strategic Insight, told PLANSPONSOR, adding that ETFs allow for quick exposure to liquidity in emerging markets.

Strategic Insight’s breakdown of ETF assets by fund types revealed that institutional investors allocated 28% of their total ETF assets to international equity strategies, while retail investors held 17% of their total ETF assets within international equity as of the end of 2012. Institutional and retail investors held about the same percent of assets in U.S. equity (37% and 35%, respectively).

Bowden said that, at times, individual investors’ use of ETFs in U.S. equity strategies is assumed to mirror overall industry ETF trends, but institutional investors are using U.S. equity ETFs more prevalently. Institutional investors accounted for a large majority of aggregate U.S. equity ETF demand in 2012—depositing a net $33 billion into such strategies during the year and far exceeding demand for U.S. equity ETFs within the retail space, the report said. “They’re using [ETFs] for different purposes,” Bowden added.

Some demand for U.S. equity ETFs by institutional investors may have been spurred by opportunities in the bull markets, but the flow totals were also influenced by the tactical use of such ETFs for hedging and other trading strategies, as well as liquidity management by mutual funds, hedge funds and other investment pools, the report said.

Overall, it is estimated that 58% of ETF assets were held within the retail marketplace at the end of 2012, compared with 42% held by institutional investors.

For information about how to purchase Strategic Insight’s report, email John Hale at jhale@sionline.com.