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The Institutionalisation of ETFs

ETFs for Institutional Investors

There is a veritable smorgasbord of ETF products now - from purely passive index-tracking ETFs, to active factor exposure ETFs, and everything between the two.  The rise in ETF assets over the past two decades is partly due to their adoption by the institutional investment community, who are increasingly using ETFs to efficiently gain exposure to particular markets, sectors, styles, or factor tilts.

The below list of papers attempts to provide further clarity about the overall ETF story, including the different ways they are being used within institutional portfolios, the present day regulatory landscape for ETFs, and where exactly to place ETFs on the active-passive continuum. 

institutional ETFs

In Turbulent Times, European Institutions Turn to ETFs (Greenwich Associates European Study, 2019)

For compliance reasons, this paper is only accessible in certain geographies

This year's Greenwich Associates ETF Study reveals rapid growth in ETF investments by institutional asset managers in Europe, as well as discretionary wealth managers and insurance companies. Investors repositioned portfolios in response to volatility in 2018 and continued to shift from active towards passive strategies.

The rise of active ETFs (Fidelity Intl blog, Nov 2018)

For compliance reasons, this paper is only accessible in the UK & Europe

The ETF market is quickly expanding, and active ETF investors can benefit from fast and efficient execution, as well as gaining broad exposures via a single liquid security. In this blog post, Fidelity International discusses the market for active ETFs in Australia.

European Equity Spotlight (Lyxor ETF, Mar 2019)

For compliance reasons, this paper is only accessible in the UK & Europe

This 44 page document provides a comprehensive overview of the characteristics of European equity indices, covering broad, country, sector and thematic indices. The report examines fund flows and investor sentiment, providing guidance in the use of ETFs to efficiently capture index returns.

Emerging Markets Equity Spotlight (Lyxor ETF, Apr 2019)

For compliance reasons, this paper is only accessible in the UK & Europe

Lyxor ETF's EM Equity Spotlight is designed to guide investors through Emerging Market equity indices, covering broad, regional and single country exposures from every angle. It also takes you through the latest outlook, returns and valuations, flow trends, and a note on active vs. passive performance.

Passive Investing: Reshaping the Global Investment Landscape (DWS AM/CREATE-Research, 2018)

For compliance reasons, this paper is only accessible in certain geographies

This DWS AM and Create-Research report surveys institutional investors about their views on passive funds and passive vs active investing.

How regulations and taxes are shaping the future of ETFs (PwC, 2018)

Alongside their newfound popularity with investors, ETFs have faced increased scrutiny from regulatory authorities that are concerned about risk management, accurate disclosures, and adequately safeguarding the wide variety of new ETF products.

Use of ETFs by Mutual Insurance Companies (S&P Dow Jones Indices, 2018)

S&P Dow Jones Indices recently published a comprehensive study on ETF usage in insurance company general accounts, showing Mutual insurance companies used ETFs more than other types of companies. In this report, we analyze the investment trends within the mutual insurance industry and compare them against the remainder of the insurance industry.

ETFs in Insurance General Accounts (S&P Dow Jones Indices, May 2018)

How are insurance companies using ETFs? This paper analyses data from several sources to examine the role of ETFs for insurance investors.

Total Cost of Ownership: A Framework for ETFs (Kempen, 2018)

Kempen uses the total cost of ownership framework to exemplify the role that ETFs can play within institutional clients' portfolios. TCO can be reduced significantly by eliminating underlying transaction costs.

Trends in the Expenses and Fees of Funds (ICI, 2018)

This paper by the Investment Company Institute details the latest trends in the expenses and fees of investment funds in 2018.

Have High-Yield ETFs Created Liquidity Risk? (MSCI blog, Mar 2019)

What is the extent of the liquidity risk within the high yield bond ETF market? The liquidity of this market was tested recently, when significant redemptions occurred in Q4 of 2018. But did high levels of ETF redemptions affect bond spreads?

The Historical Record on Active vs. Passive Mutual Fund Performance (2019)

Fund selection and screening may play an important role in the active vs passive debate. This study finds that after weeding out the non-competitively priced active funds, the difference between active and passive fund performance is not statistically significant.

Sharpening the Arithmetic of Active Management (2018)

This paper by noted academic Professor Lasse Heje Pedersen rebuffs one of Sharpe's famous equalities about active and passive investing while also providing justifications for both types of strategies.

The Shift from Active to Passive Investing: Potential Risks to Financial Stability? (FRBB, 2018)

How has the shift from active to passive strategies affected financial stability, and through which channels has its influence been felt? This paper examines four such channels as well as the potential repercussions of a continuation of the shift to passive investing.

A Regulatory Framework for Exchange-Traded Funds (2018)

Due to the specific complexities inherent within the ETF market, this paper attempts to show the need for a regulatory framework that is unique to exchange-traded funds.