U.S. institutional investors significantly increased their exposures to ETFs in 2018, driven in part by investors placing a higher focus on risk management, a new report from Greenwich Associates shows.
Among the 181 institutional investors that participated in a survey between October and December, 143 respondents said they invested in ETFs and the average allocation among those investors was 24.8%, up from 18.5% among ETF investors who responded in the 2017 survey.
The report said the growth was driven primarily be a desire to emphasize risk management. Among the respondents, about 70% said that "managing risk/return that is in line with objectives/outcome" was a top priority for the year. When respondents who invest in ETFs were asked what are the top risks they expect in 2019, the highest ranked response was geopolitical events, which 64% of those respondents said was a top risk, while 63% each said the end of the economic cycle/recession and central bank tightening were top risks.
Of those who see geopolitical events as a top risk, 86% expressed concern about trade wars, while 40% did so regarding the China debt crisis, 39% regarding European Union fragmentation and 36% regarding the increase of populism.
Out of the total respondents, 116 also said they allocate about 45% of total equity assets to index strategies, and 40% of those respondents said they are actually targeting an allocation of more than 50% of their total equity assets to indexing. In fixed income, meanwhile, 112 respondents said they allocate about 28% of total fixed-income assets to index strategies and 30% of those investors allocate 50% or more to index strategies.
Greenwich Associates said the universe of 181 institutional investors that responded to the survey consisted of 56 registered investment advisers, 44 money managers, 37 institutional funds, 33 insurance companies/insurance company asset managers, 11 investment consultants, and those numbers included executives from family offices and "other types of institutional investors."
The report is available on Greenwich Associates' website. Registration is required.