More Canadian Institutions and Asset Managers Using ETFs in Fixed Income, Smart Beta Strategies

Greenwich Report

TORONTO, ONTARIO--(Marketwired - March 9, 2017) - Canadian institutional investors, who have led the world in their innovative applications of exchange traded funds to realize their investment strategies, are increasingly turning to ETFs not just for equity allocations, but also for smart beta and fixed income strategies, according to a recent Greenwich Associates study.

In its fourth annual study of institutional ETF use, sponsored by BlackRock Asset Management Limited (BlackRock Canada), Greenwich Associates found that the increasing innovation in ETF adoption is building on Canadian institutions' strong reliance on ETFs. Participating institutional investors - including asset managers, institutional funds and insurance-related firms - hold an average of 16 per cent of total assets under management in ETFs, and more than a quarter of respondents planned to increase their ETF holdings in the next 12 months.

One driver of growth in institutional adoption has been the increasing use of ETFs as an important means to express strategy, as opposed to tactics. In fact, more than half - 58 per cent - of institutions characterize their ETF holdings as strategic in nature, and nearly two-thirds (63 per cent) hold their ETF investments for a year or longer, the threshold normally considered a "strategic" investment.

"Institutional investors' use of ETFs has grown in absolute terms in recent years, but this survey shows that it has also grown in diversity and sophistication," said Warren Collier, Head of Canada iShares for BlackRock Canada. "The Canadian industry started using the funds largely for tactical applications, but since then we've seen strategic applications grow to the point where strategy now trumps tactics when it comes to ETF use. And where it gets really interesting is how sophisticated those applications have become."

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Seizing ETFs' diversity advantage

According to the Greenwich Associates study, the benefits of ETFs for institutional investors are varied and broad. Almost 85 per cent cite ease of use as a primary reason for investing in equity ETFs, while 80 per cent say they invested in ETFs because of the speed with which they can execute trades to gain diversified exposures. More than three-quarters cite liquidity, and more than two-thirds cite market access, low trading costs and/or attractive management fees, as primary reasons for using ETFs.