GREENWICH, Conn. -- Institutional investors increased their use of equity derivatives for market timing, according to a recent survey by consulting firm Greenwich Associates.
The report, called "Different Strokes for Different Folks," shows 26% of respondents using equity derivatives for market timing, an increase from 13% of respondents the previous year.
Although fewer pension and endowment fund executives responded to the 1998 survey, those that did reported a greater use of market timing, 43%, as opposed to 7% the previous year. Investment manager use of equity derivatives for market timing was down slightly.
John G.M. Webster, partner with Greenwich, speculated that perhaps market timing isn't increasing among investors, it's just that they're more up-front about it.
Equity derivatives "have less of a negative cachet than they've had in the past," Mr. Webster said.
Jonathan Muehl, investment consultant for Buck Consulting Ltd., Pittsburgh, said the survey results might be a reflection of investor interpretations of the difference between hedging and market timing.
In the end, much of what's called hedging probably is market timing, he said.
Investors who put on some type of hedge often are doing so because they think the market is overpriced, for whatever reason, which to him sounds like market timing.
Greenwich asked institutions about hedging as well: 61% said they use equity derivatives for that reason, an increase from 57% in the previous year's survey. Forty-four percent said they buy put option protection, up from 37%, and 31% said they go short the market synthetically, up from 29%.
Regarding pension and endowment funds, 39% hedge, up from 37%, with 26% buying puts, the same as in last year's survey, and 13% go synthetically short, a big drop from 22%.
Equity derivative usage for gaining access to international markets was up for institutions overall, and among pension funds and endowments.
Twenty-five percent of all respondents said they use equity derivatives for international exposure, up from 21% the previous year.
Meanwhile, 26% of pension funds and endowments said they use equity derivatives for international, up from 19%.
Equity derivative volume also climbed, according to the survey.
The average dollar volume for all institutions in 1998 was $4.9 billion of notional value, up from $3.5 billion in 1997. (Notional amounts won't necessarily reflect derivatives trades that have offsetting risks. For example, a $100 million short Standard & Poor's 500 index futures position might be partially balanced by the purchase of $100 million of S&P 500 call options, although the notional amount would be worth $200 million).
The average equity derivative volume at pension and endowment funds was $6.4 billion notional, up from $6 billion in 1997.
Greenwich also asked institutions about how they use the Internet.
Sixty-three percent use it for access to brokers' research reports, 53% for access to broker Web sites, 39% for access to company Web sites, 32% for access to regulatory filings, and 32% to conduct primary or proprietary research.
Greenwich conducted in-person interviews in January through March with 124 institutional investors in 1998, down from 140 in the previous year's survey.
Twenty-three represented pension funds or endowments, down from 27 the previous year, and 56 were investment managers, up slightly from 55 the previous year.