How do Institutional Investors Choose ETFs?
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How do Institutional Investors Choose ETFs?

The ETF snapshot
ETFs during volatility Part 1 of 5
Fixed income ETFs Part 2 of 5
ETF use cases Part 3 of 5
Evolution of ETFs Part 4 of 5
Choosing an ETF Part 5 of 5

The following content is sponsored by iShares

The ETF Snapshot

Download the ETF Snapshot for free.

How do Institutional Investors Choose ETFs?

Although there are roughly 7,000 ETFs available globally, the majority of assets under management (AUM) belongs to a relatively small number of funds. In fact, among the 100 largest ETFs, the top 20 hold over 50% of the assets.

In this infographic from iShares, we rank the top criteria institutional investors use when selecting an ETF. It’s the last of a five-part series covering key insights from the ETF Snapshot, a comprehensive report on how ETFs are being used.

The Methodology

To assess how institutional investors navigated this volatility, Institutional Investor published a report in 2021 based on a survey of 766 decision makers. Respondents were from various types of organizations, firm sizes, and regions.

For instance, here is how responses broke down by location:

  • 21% Asia Pacific
  • 36% North America
  • 29% Europe, Middle East and Africa
  • 14% Latin America

Here’s what the survey found.

The Top Criteria for Picking an ETF

The following table lists the most important criteria institutional investors consider when selecting an ETF.

Criteria% of respondents (n=762)
AUM, liquidity, and trading volume68%
Benchmark index used53%
ETF provider’s brand and market position48%
Historical performance46%
Value-added services from ETF provider45%
Management fee34%
Transaction cost 29%

n=762

The key takeaway is that institutional investors seek large, highly liquid ETFs that are linked to the right benchmark. Perhaps surprisingly, management fees and transaction costs were the lowest priorities.

Preferred Index Providers by Asset Class

To gain further insight, survey respondents were asked to share their most preferred index provider for each asset class.

For international equities, MSCI was the top index provider with S&P trailing a close second. The two providers switched places when it came to domestic equities.

Index ProviderDomestic equities (% of respondents)International equities (% of respondents)
MSCI28%23%
S&P25%29%
FTSE Russell22%23%
Morningstar14%12%
Qontigo/Stoxx11%13%

n=766

Next, respondents ranked their top choices for factor-based and ESG investments. MSCI and S&P were once again the most popular providers.

Index ProviderFactor-based strategies (% of respondents)ESG strategies (% of respondents)
MSCI30%25%
S&P26%28%
FTSE Russell26%22%
NYSE Factset10%13%
ICE7%8%

n=766

Lastly, respondents ranked their top choices for fixed income investments. This included three categories: investment grade fixed income, high yield fixed income, and emerging market debt.

Index ProviderInvestment grade fixed incomeHigh yield fixed incomeEmerging market debt
S&P34%29%26%
FTSE Russell23%24%25%
Bloomberg18%23%22%
JPMorgan17%15%17%
ICE5%4%6%
iBoxx IHS Markit2%3%3%

n=766

S&P was the most popular provider across all three categories, with FTSE Russell coming in second.

Want more institutional insights into ETFs?

Global Forecast 2022

Download The ETF Snapshot for free.

What Role can ETF Providers Play?

45% of institutional investors (n=762) said they consider an ETF provider’s value-added services when selecting an ETF.

“We use a number of tools—but we also rely on the provider of ETFs to a great extent. They have a lot of analytics in terms of trading activity, flows, and underlying liquidity of the asset class.
Senior Analyst, asset management firm

The following table ranks the most helpful value-added services.

Service% of respondents
Portfolio construction expertise68%
Client service teams60%
Market education and insights60%
Portfolio consulting solutions56%
Portfolio modeling and trading tools51%

n=762

To wrap things up, institutional investors were asked to share their ETF provider of choice. Here were the results.

ETF provider% of respondents
BlackRock/iShares24%
State Street/SPDR12%
Invesco9%
Vanguard9%
Wisdom Tree5%
ProShares5%

n=762

To recap the findings of this survey, institutional investors give the highest priority to AUM, liquidity, and trading volume. Beyond those criteria, other elements such as value-add services and fees can help to drive a final investment decision.

Download the ETF snapshot for free.

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