Monday, June 4, 2018 Stamford, CT USA — ETFs are playing an expanding role in Latin American institutions portfolios, as investors boost allocations and apply ETFs to new asset classes and functions. 

Among the institutional ETF investors participating in recent Greenwich Associates Latin American ETF Study, ETF allocations increased to 13.1% of total assets in 2017 from 7.6% in 2016. More than 1 in 5 institutions interviewed now allocate over 20% of portfolio assets to ETFs.

Driving this growth is the increased usage and allocation of ETFs in asset classes beyond equities. For example, among the roughly 30% of institutions that invest in fixed-income ETFs, allocations to the funds increased to 6.8% of fixed-income assets in 2017, a 16% increase over 2016 levels.

“Institutions’ need for international exposures is fueling the expansion of ETF use across asset classes, including a dramatic increase year over year in commodities and REITs,” says Greenwich Associates Managing Director Andrew McCollum.

Drivers of ETF Investment
In addition, the 60 Latin American institutional investors are using ETFs as an efficient source of beta exposure alongside index mutual funds and swaps. Relative to futures and swaps, institutions see ETFs as easier to understand and much easier to employ. As a result, they are using ETFs as a source of fast and relatively cheap beta exposures in both index and active management strategies.

Across all asset classes, institutions are using ETFs in a broad and growing number of ways. From 2016 to 2017, Latin American institutions’ usage of ETFs increased in every one of the 10 portfolio functions addressed in the study—a list that ranges from the narrowest tactical applications to the broadest strategic investment functions.

Also contributing to the expansion of ETFs in Latin American institutional portfolios is the increased use of UCIT ETFs, factor-based/smart beta ETFs and multi-asset funds in which ETFs are used by asset managers as building blocks for active strategies. 

Faster Growth Ahead?
The study results suggest that the growth trend for ETFs could accelerate in the coming months. More than half of current equity ETF investors in the study plan to increase allocations in the coming year, as do 45% of fixed-income ETF investors.