Investment advisers main users of ETFs
LONDON, (Reuters) – The use of exchange-traded funds (ETFs) accelerated during the financial crisis, with investors seeking them out as havens of liquidity and transparency, an 11-year study released on Monday showed.
The report by Barclays Global Investors (BGI) using Thomson Reuters data said the number of institutions using ETFs has grown 1,673 percent since 1997, at a compound annual growth rate of 30 percent.
Net sales of ETFs in 2008 were $270 billion, compared to an outflow of $117 billion from mutual funds, the report said.
ETFs, which first emerged in the early 1990s, are open-ended funds that track an index or assets such as commodities but are traded like shares.
They offer exposure to countries and sectors at rates often cheaper than traditional active and index funds.
The report also predicts their use to increase further in coming years as pressure mounts on portfolio managers to provide a broader range of sectors and markets to their clients.
"We have found that many (portfolio managers) are admitting that they do not have the time nor resources to try to add value in all markets and are embracing the use of ETFs to gain international market exposure," the report said.
It also expects regulatory reform of financial services globally, placing greater demands on financial intermediaries to demonstrate best advice, will also boost the use of ETFs.
Investment advisers managing assets for private clients and institutions are the most prolific users of ETFs, accounting for 73.5 percent of the total in 2008, followed by hedge funds with 15 percent.
The study shows use by hedge funds, which increased at an annual rate of more than 42 percent over the 11 years, is accelerating faster than for investment advisers who added around 31 percent per year.
Use of ETFs remains concentrated in the United States with more than 2000 institutions reporting holdings, though their reach has spread since the 1990s.
The most popular ETF in 2008 was the SPDR S&P 500 fund, held by 1,349 institutions, followed by the iShares MSCI EAFE Index Fund and the iShares MSCI Emerging Markets Index Fund, each held by more than 800 institutions.
The UK was the second biggest user of ETFs with 120 institutions reporting holdings in 2008 followed by Canada and Switzerland.
BGI is a unit of Barclays that is being acquired by U.S. money manager BlackRock Inc.
