Canadian institutional investors are increasingly turning to exchange-traded funds (ETFs) to execute their investment strategies, according to new research from Greenwich Associates.
The firm reported that its latest survey of Canadian asset managers, institutional funds and insurers found that these firms are stepping up their use of ETFs to fulfil both their strategic and tactical investment needs.
“Canadian institutions made aggressive use of exchange-traded funds in their portfolios last year as they navigated a sharp market downturn, a surge in volatility and a series of unpredictable geopolitical events,” Greenwich said in its report.
The firm said that institutions are using ETFs for their flexibility, cost efficiency and user friendliness, amid various headline market trends. For instance, the ongoing shift from active to index strategies is motivating firms’ use of ETFs.
At the same time, Greenwich reported that declining liquidity in the global bond markets is driving demand for bond ETFs. It said that 27% of current ETF investors are planning to increase allocations to bond ETFs in the coming year, and 20% plan to boost allocations to equity ETFs.
“Even with conditions turning more favourable for investors in 2019, demand for ETFs is projected to continue climbing as Canadian institutions add the funds to their portfolios and use ETFs to strategically replace other investment vehicles,” Andrew McCollum, managing director with Greenwich, said in a statement.
Greenwich also forecasted that strong demand for factor-based strategies will remain one of the key drivers of ETF growth in 2019.
“Over a longer horizon, Greenwich Associates expects the continued integration of environmental, social and governance (ESG) into institutional investment processes to emerge as an important source of demand for ETFs in Canada,” added McCollum.
The study is based on interviews with 51 institutional investors, including portfolio managers/chief investment officers, research analysts and other professionals, primarily from large institutions.