Money managers are using more and more of each others' exchange-traded funds as portfolio tools — significant because ETFs are the only major example of investment management firms using their competitors' products.
Managers also have more ETFs from which to choose: The number of ETFs has grown to 1,134 as of Dec. 31, from 629 at the end of 2007.
“With product proliferation, it opens up opportunities to use them in different ways,” said Andrew McCollum, a consultant with Greenwich Associates, Stamford, Conn., who has studied ETF growth among institutional money managers. ”Just three years ago the use of ETFs was much more narrow.”
BlackRock Inc., the largest money manager and ETF provider in the world (through its iShares unit), is one of the largest users of other firms' exchange-traded funds, according to an analysis by State Street Global Advisors, Boston.
BlackRock, New York, had $8.9 billion invested in 98 different ETFs at the end of 2011, of which about $2.8 billion was in other firms' offerings. They were $1.7 billion with SSgA; $436.2 million, Vanguard; $410.3 million from ETF Securities LLC; $176.4 million, Van Eck Global; $52.1 million, Sprott Asset Management LP; $22.5 million, Invesco PowerShares Capital Management LLC; and $1.1 million Wisdomtree Funds.
Still, BlackRock's ETF holdings are only a small piece of its $3.5 trillion under management.
The second-largest user of other firms' ETFs among large money managers according to the SSgA analysis is Pacific Investment Management Co. LLC, Newport Beach, Calif., which had $2.9 billion invested in ETFs at year-end 2011, of which more than $2.1 billion was in other companies' funds, according to SSgA. The bulk was invested in just two: $1.2 billion in the Vanguard Emerging Markets ETF; and $893.7 million in SSgA's SPDR Gold Shares.
PIMCO's numbers have been rising. Company spokesman Michael Reid said as of March 1, total PIMCO ETF assets were about $3.75 billion.
SSgA had $4.3 billion in ETFs, of which $1.9 billion was invested in other providers' products. They are $990 million with BlackRock; $860.4 million, Vanguard; $28.9 million, Powershares; $9.4 million, PIMCO; and $3.2 million, Van Eck.
Meanwhile, a report last May by Greenwich Associates showed that 10 of 20 large money management firms surveyed plan to increase the amount they invest in ETFs.
“Not one money manager said they plan to decrease their ETF allocation,” Mr. McCollum said.
The report found that traditional uses of ETFs are still popular, with three-quarters of money managers surveyed using them for cash equitization or interim beta, and 45% using them during manager transitions.
But it also found that 40% were using exchange-traded funds as part of their regular rebalancing procedures, 40% were using them to make tactical adjustments to their portfolios, and 30% for hedging. Another 10% reported using ETFs for liquidity management.
Mr. McCollum would not name the survey participants.
One place ETFs are being used increasingly by portfolio managers at money management firms is in multiassset separate account and mutual fund strategies.