In interviews with the institutional investing pros, five primary factors were cited in the recent ETF growth:
- Institutions are finding new and increasingly strategic applications for ETFs.
- ETF use is expanding rapidly in fixed income.
- Institutions are using ETFs alongside derivatives.
- ETF providers are innovating with new strategies and approaches.
- Insurance companies are embracing ETFs.
Gamba added that institutions are using the product “to seek additional liquidity in their bond portfolios, to aim to outperform broad market returns via smart beta strategies and to make longer-term strategic allocations.” He said that another factor boosting ETFs are portfolio costs that are much lower than futures.
What could stop the exchange-traded product that has been going on for years?
Gamba said it could happen if someone put together a bad ETF and that led to a hostile regulatory climate.