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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 volume | 68% |
| Benchmark index used | 53% |
| ETF provider’s brand and market position | 48% |
| Historical performance | 46% |
| Value-added services from ETF provider | 45% |
| Management fee | 34% |
| 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 Provider | Domestic equities (% of respondents) | International equities (% of respondents) |
|---|---|---|
| MSCI | 28% | 23% |
| S&P | 25% | 29% |
| FTSE Russell | 22% | 23% |
| Morningstar | 14% | 12% |
| Qontigo/Stoxx | 11% | 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 Provider | Factor-based strategies (% of respondents) | ESG strategies (% of respondents) |
|---|---|---|
| MSCI | 30% | 25% |
| S&P | 26% | 28% |
| FTSE Russell | 26% | 22% |
| NYSE Factset | 10% | 13% |
| ICE | 7% | 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 Provider | Investment grade fixed income | High yield fixed income | Emerging market debt |
|---|---|---|---|
| S&P | 34% | 29% | 26% |
| FTSE Russell | 23% | 24% | 25% |
| Bloomberg | 18% | 23% | 22% |
| JPMorgan | 17% | 15% | 17% |
| ICE | 5% | 4% | 6% |
| iBoxx IHS Markit | 2% | 3% | 3% |
n=766
S&P was the most popular provider across all three categories, with FTSE Russell coming in second.
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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 expertise | 68% |
| Client service teams | 60% |
| Market education and insights | 60% |
| Portfolio consulting solutions | 56% |
| Portfolio modeling and trading tools | 51% |
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/iShares | 24% |
| State Street/SPDR | 12% |
| Invesco | 9% |
| Vanguard | 9% |
| Wisdom Tree | 5% |
| ProShares | 5% |
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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