Key takeaways:
- ETFs have several unique features that may make them an attractive option for institutional investors, including intraday liquidity, transparency, cost-effectiveness, and versatility. These qualities make them an efficient choice for gaining exposure to a wide range of asset classes and strategies.
- Although ETFs have grown rapidly, especially in the U.S., they still account for less than 20% of global investable assets, highlighting significant room for expansion and adoption.
- Institutional investors can now choose from a wide range of ETFs, including both index and active strategies across all major markets and asset classes.
In today’s dynamic investment landscape, exchange-traded funds (ETFs) are growing in importance for institutional investors, offering a flexible and efficient way to navigate complex markets. Over the last 30 years, ETFs have evolved from a novelty to a fundamental part of portfolio management. With the ETF market now at US$19.2 trillion, these tools are key for risk management, benefiting from adaptability, innovation, and flexibility. Yet, experience tells us that ETFs comprise a larger portion of individual investors’ portfolios but historically are used less in the institutional world. We see reasons for that to change.
For institutional investors, ETFs have diverse strategic applications, from offering a liquid and cost-effective means of accessing esoteric markets and facilitating tactical asset allocation to enabling securities lending. They are versatile solutions that can address many different client needs. Institutional investors can now choose from a wide range of ETFs, including both index and active strategies across all major markets and asset classes.
This paper explores how ETFs can boost diversification, enhance liquidity, and optimize portfolio management for entities like pension funds, insurance companies, family offices, endowments, and foundations. While ETFs are used differently by different client types, examples are provided of some of the solutions Janus Henderson is currently seeing in market.