Pace of ETF adoption among US asset owners remains slow

Written by Adam Cadle

11/12/2023

Just 25% of US asset owners use equity ETFs and just 25% use fixed income ETFs, new data published by Cerulli has revealed.

Whilst large segments of US institutions indicate they are willing to consider equity (51%) or fixed income (36%) ETFs, only 8% of US asset owners agree they will increase use of ETFs over the next 24 months.

According to ETF issuers, asset owner preference for other vehicles is the most significant headwind to ETF adoption. Cerulli found that asset owners more commonly plan to increase their use of co-investments (31%), private direct investments (19%), private commingled funds (18%), and separate accounts (16%).

Twenty-six per cent of ETF issuers have reported limited institutional client ETF education as a significant challenge, followed by limited client awareness of ETF issuers (22%). Issuers also cite a lengthy institutional buying process, noting the effort required to provide education and go through approval procedures.

“While the pace of ETF adoption among institutional investors remains slow, the segment still holds more than $1trn in ETF assets, a figure that will continue to grow, making it worthwhile for managers to engage and overcome longer investment processes that can involve boards and committees,” Daniil Shapiro, director at Cerulli, said.

Cerulli has encouraged asset managers to continue to invest in seeking to penetrate the large institutional market with a focus on helping participants understand key ETF use cases and benefits for their channel.

“As the range of options amongst active ETFs grows—and more ETFs reach the asset range to be attractive to institutional buyers (e.g., by virtue of having a larger base where the institution’s investment is a smaller slice)—an opportunity exists to expand institutional ETF access,” Shapiro concluded.

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