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Institutional Usage of North America ETFs

The North American institutional ETF market represents a trillion dollar opportunity and growing.

Institutional Usage of North America ETFs

Institutional investors are embracing ETFs as major benefits such as ease of use and access to liquidity attract an increasingly larger pool of institutions to this investment vehicle. Assets have grown at an average annual rate of 17 percent since 2014 to reach more than $1 trillion, easily outpacing the growth rates of most other investment vehicles. This asset pool is forecast to grow even faster as institutions adopt ETFs to replace higher fee products in an increasingly volatile market environment.

Equity leads in assets, but fixed income growing fast

Equities enjoyed the first wave of product innovation and amassed the dominant share of assets. Institutional equity ETF assets reached $840 billion at the end of H1 2018, representing more than 80 percent of overall institutional ETFs. Large cap equity is by far the largest category representing ~56 percent of the total ETF equity offering or 45 percent of overall ETFs used by institutions.

However, fixed income ETFs have experienced the fastest growth in recent years, advancing 21 percent annually since 2014 and surpassing an equity ETF growth rate of 14 percent. More institutional users have warmed to their ease of use, low trading costs and the broadening of offerings in more sophisticated strategies.

U.S. institutions are core buyers but Canada sees encouraging growth

As of H1 2018, almost three-quarters of North American ETFs were bought by U.S. investors, 6 percent by Canadians, a further 6 percent by Latin Americans and the remainder by APAC and EMEA investors. While U.S. investors usage saw an increase from 70 percent in 2014, all other regions experienced a contraction in the use of ETFs with the sole exception of Canada, where buyers favor ETFs for core allocation, international diversification and tactical adjustments – one of the top three reason cited for employing ETFs.

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