Daily ETF Watch: Institutional Use Grows

ETFs are becoming core holdings for institutions.

Reviewed by: Hung Tran
Edited by: Hung Tran

ETFs are becoming core holdings for institutions.

ETFs have grown into strategic investments among the institutional crowd, which is making ETFs a core part of its portfolios, according to a study released by Greenwich Associates.

ETFS have grown in the last 20 years, since the launch of the SPDR S&P 500 ETF (SPY | A-97), into an industry rivaling that of hedge funds, which currently manage some $2.7 trillion globally.

Currently, global ETF assets stand at around $2.5 trillion, with the bulk of those assets in U.S.-listed ETFs. ETF.com Analytics data lists some 1,584 U.S.-listed ETFs that are managing more than $1.755 trillion.

According to the Greenwich study, nearly half (49 percent) of institutions report average ETF holding periods of two years or more, a jump from 36 percent in 2013. Also, 46 percent of institutions allocate 10 percent or more of total assets to ETFs.

Among registered investment advisors (RIAs), Greenwich said that that 41 percent of RIAs invest more than 25 percent of their assets in ETF.

“Core allocations are becoming the biggest use for institutional investors,” said Daniel Gamba, head of iShares Americas Institutional Business, at a press briefing in BlackRock’s headquarters in New York yesterday.

“This is still the second or third inning of ETF adoption, because more and more institutions will continue to use them,” Gamba noted.

ETF.com Analytics

Last year was a bullish year for alternative energy-related ETFs, which more than doubled thanks to broader market gains of about 32 percent by the S&P 500 Index. Fast-forward to 2014, and while some of these ETFs returns have plunged thanks to recent sell-offs in momentum stocks, inflows are still coming into these high-growth ETFs.

Namely, the $422 million Guggenheim Solar ETF (TAN | B-39) and its competitor, the $26 million Market Vectors Solar Energy ETF (KWT)—which had meteoric gains of 128 percent and 105 percent, respectively, in 2013—are currently up a more pedestrian 14 percent and 7 percent, respectively, besting the S&P’s year-to-date gains of 2.6 percent.


TAN and KWT have pulled in $125 million and $4 million, respectively, year-to-date, according to ETF.com Analytics.

Also, the $481 million Market Vectors Biotech fund (BBH | A-38) is up a paltry 0.5 percent year-to-date after rising 65 percent in 2013. As well, the $121 million Global X Social Media Index ETF (SOCL | B-21) is getting crushed in 2014, to the tune of a 20 percent loss after cruising to a 64 percent gain in 2013.


Charts courtesy of StockCharts.com

But investors haven’t backed off SOCL and BBH entirely. Rather, $32 million has flowed into SOCL and $27 million has flowed into BBH year-to-date, according to data compiled by ETF.com Analytics.

Hung Tran is a former staff writer for etf.com.