It's that time of year again: The Greenwich Associates' 2017 U.S. Exchange-Traded Funds Study, conducted in collaboration with BlackRock, is hot off the presses.
The annual survey, which offers fascinating insights into how and why institutional investors are using ETFs in their portfolios, is must-read for ETF nerds like us.
But as we thumbed through this year's report, "ETFs: Valuable Versatility In A Newly Volatile Market," we realized that something feels different this year. And it's not just because ETFs are now commonplace at institutions (e.g., a whopping 90% of survey respondents said they used equity ETFs, and 77% said they used bond ETFs).
Rather, what's striking is the ways in which institutions are using ETFs. Whether it's swapping futures positions out for index ETFs or deploying multifactor and smart-beta bond products, institutions are moving beyond basic, core exposures and using ETFs to enact sophisticated, creative strategies that, years ago, only a handful of investors dared attempt.
Below we've highlighted the five results from this year's survey we found most intriguing:
Cost Isn't Investors' Top Concern
Expenses are a hot topic these days, and ETF issuers are racing to see who can offer the fund with the lowest fees. But respondents in the Greenwich survey said other factors mattered more than cost, such as liquidity, performance and fund exposure.
For 80% of institutions surveyed, the top concern when evaluating ETFs was whether that fund's particular exposure met their portfolio needs. Other primary concerns included liquidity and volume (76%) and fund performance, including tracking error (66%). ETF expense ratios were also a primary concern (66%), but they weren't the only consideration that mattered:
That result may sound counterintuitive, considering the massive inflows we've seen into low-cost ETFs in recent years. Bloomberg senior ETF Analyst Eric Balchunas recently reported that of the $107 billion that ETFs and index mutual funds took in year-to-date, 90% went to funds cheaper than 0.20%.
But perhaps it's just a happy accident, says Andrew McCollum, managing director of Greenwich Associates and author of the report.
"Fees are indeed an important decision driver with ETFs," said McCollum. "However, given that ETF fees are so low, the differential between providers is not as substantial as it is among active managers. As a result, other criteria—such as quick access, ease of use or liquidity—tend to rise above fees as decision drivers."
Fund liquidity is of particular importance, as institutions are increasingly using ETFs in "quick response" strategies, says Ravi Goutam, head of Pensions, Foundations and Endowments for iShares:
"These institutions are trading in size, and rapidly, based on moving markets. They may not hold their positions for long, so management fee, while important, isn't that important," he said. Still, "liquidity and the right benchmark often coincide with low fees—it's the icing on the cake."