Greenwich Associates Releases 2015 European Exchange-Traded Funds Study Results

Exchange-traded funds are growing in Europe’s institutional market in terms of both number of users and overall investments. That momentum helped drive overall ETF allocations among institutional users to 9.3% of total portfolio assets in 2015, up from 7.2% in 2014, according to a new study from Greenwich Associates.

ETFs are becoming a staple of European institutional equity portfolios, and the results of the Greenwich Associates 2015 European Exchange-Traded Funds Study show that equity and fixed-income ETFs are on a solid growth trajectory.

Greenwich Associates interviewed 123 European-based institutional investors, including pension funds, asset managers and insurance companies. This new report, ETFs in the European Institutional Channel:  5 Key Trends, reveals five emerging trends that will augment growth in equities and drive the expansion of ETFs throughout institutional investment portfolios in Europe:

  1. Liquidity needs will fuel demand for ETFs in fixed income. In both Europe and the U.S., institutional investors have experienced a reduction in secondary-market trading liquidity. Meanwhile, ETF liquidity has been increasing. Based on these trends, Greenwich Associates expects the share of European institutions using bond ETFs to grow along with overall institutional fixed income assets devoted to ETFs.
  1. ETFs are increasingly being used for core, strategic and tactical applications. European institutions continue to discover new applications for ETFs. Although ETF use remains weighted toward tactical functions, nearly two-thirds of European institutional ETF investors use the funds to obtain core exposures, and about the same share use ETFs to achieve international diversification—another important strategic function.
  1. Growing numbers of European institutions are using ETFs to replace derivatives positions. Almost half the institutions in the study shifted from derivatives products to ETFs in the past year, and 41% plan to replace an existing equity futures position with ETFs in the coming year.
  1. Innovative fund types, such as smart-beta ETFs, will provide new ways for investors to obtain exposures. Among study participants, more than half of current users of non-market-cap-weighted/smart-beta ETFs plan to increase allocations to these funds in the next 12 months and sizable shares plan to initiate or increase investments in other new strategies.
  1. The growing popularity of multi-asset funds is creating new demand for ETFs among the asset managers that offer these products. Approximately 80% of the asset managers in the study offer multi-asset funds in which they employ ETFs to gain exposures. Within these funds, the asset managers invest 22% of total assets in ETFs.

“These findings suggest the flexibility and adaptability that allow institutions to find new ways to apply ETFs in their portfolios will play a central role in the continued proliferation of the funds in the institutional channel,” says Greenwich Associates Managing Director Andrew McCollum.