BlackRock is “committed to creating new, innovative products that expand the world of investing for our clients,” it said in a statement provided by a spokeswoman.
“Over the past year our iShares platform launched the world’s largest bitcoin and Ethereum ETPs, introduced our max buffer ETF lineup, expanded our active ETF range and surpassed $1 trillion in our bond ETF assets,” the statement said.
At Invesco, which ranked as the fourth-largest ETF index manager with $643.8 billion as of June 30, up 38.5% from a year earlier, the number of ETF educational sessions it has done with institutional investment consultants is “off the charts” this year, said Emily McKinley, head of institutional specialists, ETFs and models.
While she declined to name specific consultants, “almost every single one of the top ones have reached out,” McKinley said
“The investment consultants are really brushing up on ETFs and typically that tends to be because their clients are asking,” she said, adding that “without question” Invesco has seen “much more interest” from investment consultants than last year.
“Whereas last year they might be turning down meetings … this year we’re being sort of proactively sought out,” she said.
McKinley said she suspects that brisk flows into U.S. ETFs this year is one factor helping to boost interest in ETFs among the institutional clients those consultants serve.
The global ETF industry attracted $164.7 billion of net inflows in September, bringing year-to-date net inflows to a record $1.24 trillion, ETFGI, an independent research and consultancy firm, said in an Oct. 24 news release.
“Secondly, ETFs as a category have been in the news quite a lot with just the innovation, particularly around things like ... crypto, derivative income, active,” McKinley said.
Institutional investors such as pension funds have access to “every vehicle out there,” she said.
“And so, for them to use an ETF, it has to make sense,” McKinley said. “It has to make sense both from (an) exposure standpoint, and it has to make sense from a vehicle standpoint.”
Why institutions are using ETFs
Broadly speaking, there are three key reasons why institutions use ETFs, McKinley said. The first reason is access, she said, adding that ETFs can offer institutions on-exchange access to “illiquid, opaque, in some cases stressed markets or expensive markets.” She cited senior bank loans, collateralized loan obligations, emerging market debt and high yield debt as some examples.
The second reason is “just pure speed to market,” she said. Over the past 18 months or so, Invesco has had a couple of pension fund clients “who have explicitly told us they’re using an ETF because they don’t want to go through an RFP process,” said McKinley, who declined to provide client names.
A third reason is “using ETFs for tactical expression,” she said.
“Especially in 2024, we have seen just a lot ... of clients thinking about how to use ETFs in a more tactical fashion,” McKinley said, adding that, in particular, clients have been seeking ways to position around U.S. equity market concentration. “I mean the (Magnificent) 7 market concentration, that’s something that everybody has on their minds.”
Based on Oct. 21 closing prices, the Magnificent 7 companies — Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla — accounted for 31% of the total market capitalization for the S&P 500, according to FactSet Research Systems data.
“We have seen a lot of clients use ETFs — and in particular our ETFs — to position around that,” she said.
The Invesco ETFs that have seen the biggest inflows so far in 2024 are the Invesco QQQ Trust, Series 1, known by the ticker symbol QQQ; the Invesco NASDAQ 100 ETF, known by the ticker QQQM; and the Invesco S&P 500 Equal Weight ETF, which has RSP as its ticker, McKinley said.
QQQ and QQQM both track the Nasdaq-100 index. RSP is designed to help investors eliminate concentration risk in the S&P 500, according to Invesco’s website. Institutional investors — including a number of U.S.-based endowments and foundations as well as non-U.S. insurers and pensions — have been “very big holders and traders … both in and out of those funds over the past year," McKinley said.
Those two exposures — the Nasdaq-100 index and the S&P 500 Equal Weight index — “combine in a really unique way,” she said. The combination allows investors to mitigate U.S. equity market concentration while also providing exposure to the market’s most innovative companies, McKinley said.
QQQ has seen net inflows totaling $17.4 billion in 2024 through Oct. 11. QQQM was next with $11.3 billion followed by RSP with $8.7 billion, according to Invesco data.
Concern over equity market concentration risk has boosted interest in equal weight ETFs among WallachBeth’s clients, Martin said, noting, however, that the firm doesn’t offer investment advice.
“You have seven names that have kind of dictated a lot of what the market has done,” he said. “I think it gets to a point where, you know, how much further does that go?”
As investors look toward equal-weight products, RSP, which has been around for a while, is among the ETFs getting investor attention these days, he said.
“I’m sure there’s people at Invesco who were selling RSP 10 years ago, five years ago and being like, ‘What am I doing here,’” Martin said, adding that now, however, “it’s having a lot of … success.”