40% of insurance general accounts expect to increase allocations to ETFs

Written by Adam Cadle

11/12/2024

Forty per cent of insurance general accounts expect to increase allocations to ETFs, while a net 25% expect to decrease allocations to mutual funds, new research from Cerulli has found.

Part of the impetus driving these expected flows is the overarching trend of cost reduction.

Thirty-seven per cent of institutional investors overall expect to increase allocations to ETFs in the next two years, while a net 11% expect to decrease allocations to mutual funds.

A deeper analysis into how institutions are using ETFs shows that cost-cutting may not be the sole, or even primary, driver. ETFs are already widely adopted across institutions – 80% of institutional investors surveyed by Cerulli report using ETFs – but only 16% of institutions that use ETFs say they use the vehicle as a core portfolio holding. Far more often, they use ETFs to gain or maintain exposures (51%), manager cash/liquidity (34%), and/or make tactical bets (27%).

While institutional investors predominantly use passively managed equity ETFs, the use of other strategy types has become much more common. According to Cerulli, at least 76% of institutional investors across channels employ passive equity ETFs. Insurance companies use active equity and passive fixed-income ETFs at the same rate (78%). Active fixed income ETFs are used the least frequently across institutions; insurance companies use this type of product the most (67%), and foundations use them at a much lower clip (35%). In the fixed-income ETF space, specifically, a lack of funds with established track records and accumulated assets has likely hampered the appetite from institutional investors.

“As ETFs become more common in the institutional space, and as institutions continue to look for ways to reduce costs in their traditional investment portfolios in favour of allocating their risk budgets toward esoteric strategies (e.g., private markets), Cerulli expects more institutions will use ETFs as long-term holdings,” Jack Tamposi, associate director at Cerulli, said.

“As asset managers seek to win more mandates, it is important to look at not only the types of strategies that will be in vogue, but also the types of vehicles that will allow institutions to pursue these strategies,” he concluded.

Related Articles