Whether it is at the institutional level, among registered investment advisors or do-it-yourself investors, use of exchange traded funds is increasing.
Equally as important as the fact that investors of all stripes boosting their usage is how they are employing ETFs in portfolios. BlackRock (BLK), the world’s largest asset manager and parent company of iShares, the world’s largest ETF issuer, partnered with Market Strategies International to gather information from 531 investors with at least $100,000 in investable assets and 260 financial advisors from wirehouse, independent, and RIA channels with at least $50 million in assets under management to investigate how investors are using ETFs.
One key takeaway from the findings is that ETFs are, not surprisingly, the fastest growing investment option for investors looking for core portfolio building blocks. Nearly half of investors surveyed said they have boosted their usage of ETFs over the past several years, according to BlackRock.
Data also show increased usage of ETFs among advisors, regardless of AUM. A study by Cerulli Associates released earlier this year showed RIAs’ use of ETFs increased 27% annually over the past five years. [Advisors Increase Use of ETFs]
Earlier this year, Cogent Research and Invesco’s (IVZ) PowerShares unit, the fourth-largest U.S. ETF issuer and one of the leading purveyors of smart beta funds, said a quarter institutional decision makers indicate they are already using smart beta ETFs, implying significant room for growth. Speaking of growth, “over the next three years, institutions plan on increasing their use of smart beta ETFs more than any other category (including market-cap weighted ETFs),” according to PowerShares and Cogent. [Advisors Increasing Use of Smart Beta ETFs]
More investors are planning to use ETFs as core portfolio positions over the next two to three years, according to BlackRock.
Bolstering the case for the ETF industry’s long-term growth is this data point: Nearly two-thirds of investors surveyed are using ETFs for holding periods of three to five years, according to BlackRock data.
That speaks to the accessibility, ease of use and cost efficiencies offered by ETFs. As has been well-documented over the years, low fees have played a pivotal in the industry’s growth and investors’ increasing use of ETFs.
Easy-to-understand, low-fee ETFs can be key drivers of sticky asset creation and issuers have responded to that theme as highlighted by iShares recently doubling the size of low-cost core suite to 20 from 10 ETFs. Those core ETFs include the iShares Core MSCI Emerging Markets ETF (IEMG) and the iShares Core High Dividend ETF (HDV) , which have almost $9 billion in combined assets under management. [Big Additions to iShares Core Suite]
Graphic Courtesy: BlackRock
Tom Lydon’s clients own shares of IEMG.