Data from the latest Pensions & Investments money manager survey show healthy double-digit percentage gains in assets managed in sponsored exchange-traded funds and liability-driven investment strategies, and a more than 50% jump in assets managed for sovereign wealth fund assets.
Total worldwide assets managed in sponsored ETFs jumped 27.3% to $1.551 trillion as of Dec. 31, while assets in LDI strategies rose 14.3% to $1.318 trillion. Assets managed for sovereign wealth funds saw a 55.7% gain, to $1.232 trillion.
“These are big numbers,” said Zainul Ali, director and head of manager research, Americas, at Towers Watson & Co., Toronto. “Institutional investors are going into alternative ETFs, not just hedge funds but real estate, infrastructure, commodities, distressed debt.” While in the past, to invest in those classes required an external manager with separate accounts, “now you can get exposure to uncorrelated risk in an ETF with higher return and lower fees.”
Among the top 500 managers based on worldwide institutional assets under management, with at least $250 million in the individual categories, Northern Trust Global Investments had the largest percentage increase in sponsored ETF assets, up 271% to $2.4 billion, while Strategic Investment Group led in percentage gains for LDI assets, up 148.7% to $14.16 billion. Fisher Investments had the top percentage increase in sovereign wealth assets, up 616.5% to $1.471 billion.
“ETFs are a strategic initiative for the company as a whole, not just an investment initiative,” said Stephen Potter, president, Northern Trust Global Investments, Chicago. “The products we've developed are complementary to strategies we've always offered in the institutional space.”
Most of Northern Trust's asset increase came from the wealth advisory market and from three major ETF products, the Global Upstream Natural Resources Index ETF and two Treasury inflation-protected securities ETFs: the three-year duration and the five-year duration, Mr. Potter said.
“The underlying theme in the (natural resources) fund is that it's used to achieve inflation protection and portfolio diversification, through equity exposure,” Mr. Potter said. “The value proposition for our TIPS funds is their ability to target duration, creating a more precise tool for hedging inflation. The TIPS funds have also been popular in a low-rate environment, where clients are reluctant to put money into long duration. The three-year is most popular since observers see the (Federal Reserve) holding steady on rates for two to three years.”
Total sponsored ETF assets at NTGI stood at $5 billion as of May 6.
BMO Global Asset Management was second in percentage increases in sponsored ETFs, up 184.8% to $9.081 billion.
“We launched our ETF business four years ago, and it took years to build the infrastructure to market the products,” said Rajiv Silgardo, Toronto-based co-CEO and CEO of BMO Global Asset Management Inc. (Canada). “We started coming into our own” in 2012, “with strong wholesaling and new, innovative products.”
Mr. Silgardo was part of a 10-person team that joined BMO in 2009 from Barclays PLC two months prior to the sale of its iShares ETF business to BlackRock Inc. He helped create Barclays' first Canadian ETF in 1999.
Mr. Silgardo said asset growth came from institutional and retail clients. BMO Global's most successful ETF series has been its covered-call strategies, begun in late 2011, in which options are run on six Canadian banks, as well as utilities and the Dow Jones industrial average. Also, in November 2012, the firm created the S&P/TSX Preferred Share Index ETF, an equity fund built as a laddered ETF structure that's closely correlated to fixed income. As of May 16, that ETF had pulled in $800 million since its inception.
“The successes we've had are in a variety of asset classes,” Mr. Silgardo said.
Pacific Investment Management Co. LLC was third in percentage ETF gains, up 153.9% to $10.383 billion, on the strength of its PIMCO Total Return ETF, which was launched in March 2012 and grew to $3.87 billion as of Dec. 31 and $5.3 billion as of May 14. “The broad trend (in ETFs) speaks to flows into fixed income, said Douglas Hodge, managing director and chief operating officer at PIMCO, Newport Beach, Calif. “There are still extraordinary assets flowing into fixed income, both from institutional investors and from retail investors. Assets are also flowing into equities, no question, but they're not coming from fixed income.”