Institutional Investors Aiming to Boost ETF Holdings: Cerulli

More than a third of financial institutions plan to widen their ETF holdings over the next two years, while at the same time cutting mutual fund allocations, a survey found. 

A net 37% of institutional investors plan to expand ETF holdings, while at the same time a net 11% plan a reduction in mutual funds, according to the survey from Boston-based financial research firm Cerulli Associates. The net figures represent portions of firms planning to boost proportions minus those that plan to trim holdings, the survey said.

ETFs have been pulling in assets that may have otherwise gone into mutual funds for years due to their lower cost and ease of trading: They are bought and sold at any time on exchanges while mutual funds are traded at day’s end after net asset values are calculated. Mutual funds’ assets have been narrowing while those of ETFs expand, and issuers are increasingly converting the former format into the latter.

ETF inflows topped $1 trillion year to date for the first time this year, and institutional investors continuing to choose them over mutual funds means more growth for the industry. By some estimates, institutional investors make up around 80% of the volume of stock trading.

$10 Trillion U.S. ETF Industry

U.S. ETF assets climbed past $10 trillion this year thanks in part to investors choosing exchange-traded funds over mutual funds. 

While institutions are known to choose ETFs to cut costs, and while 80% of institutions own ETFs, other factors are leading to their selection over mutual funds, the survey found. Just over half, 51%, said they use exchange-traded funds to gain or maintain exposure to certain assets. Cash and liquidity management was cited by 34% of respondents. 

“Institutions indicate that they use the vehicle as a transition tool, managing exposures to asset classes, rather than as a long-term, core investment holding,” Cerulli associate director and survey author Jack Tamposi said in the statement. “Institutions are not holding their positions for an extended period.”