Australian institutions warming to ETFs

A survey of 35 institutional investors by VanEck has indicated that the largest Australian investors are willing to increase their exposure to ETFs.

The Australian VanEck Institutional ETF survey was conducted in February 2017 and included responses from seven industry funds, five retail funds, 11 asset managers and four asset consultants.

The survey found that over half (55 per cent) of respondents are currently using ETFs in their portfolios, and 70 per cent believe ETFs will become "more prevalent" in coming years.

For the institutional investors not currently using ETFs, 53 per cent said they would "probably" use them in the future.

The major stumbling blocks for institutions when it comes to ETFs are primary market liquidity, secondary market liquidity, lack of depth in the market and a restriction to only investing in indices.

Two-thirds of Australian institutional investors are using ETFs to access Australian equities, international equities and fixed income.

The key uses of ETFs by institutions are strategic asset allocation, tactical asset allocation and cash equitisation, according to the survey.

A majority of Australian institutions make ETF trades of below $10 million, while 6 per cent of institutions use them to make trades of between $200 million and $500 million.

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