ETFs' Future: Huge Growth

February 04, 2014

Institutional Holding Periods

But look at what’s happening. This is the Greenwich Associates annual report on institutional use of ETFs. As the cost of the ETFs has come down, 36 percent of institutions now say they use ETFs for periods of longer than two years. Five years ago, that was zero.

Here’s what the actual quote from their report says:

Although ETFs first entered institutional portfolios mainly as tactical tools … many institutions indicate they are beginning to regularly use ETFs for many additional purposes, including gaining long-term exposures and implementing investment strategies.

And if you don’t believe Greenwich, just consider something we all saw this year, when the Arizona State Retirement System and its $20 billion in assets teamed up with iShares to launch a series of factor ETFs because that was the cheapest way to get liquid exposure they could find.

It took them three years of business development efforts to launch the funds, but they still felt it was worth it. This is what the co-CIO of ASRS, David Underwood, said when we interviewed him for the Journal of Indexes: “We had not used ETFs in any meaningful fashion previously … [but] very much to their credit, iShares … priced these ETFs at 15 basis points.”

It’s a trend we see repeating itself over and over again in the year to come.

In short, the case for cost savings has always been there for advisors and individual investors, and now it’s truer than ever for institutional investors as well.


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