European investors to replace derivatives with ETFs

ETFs1Demand for exchange-traded funds (ETFs) among Continental European institutions is predicted to grow by almost a fifth this year. A Greenwich Associates report finds that ETFs are replacing derivatives, with 41% of institutional investors that the consulting firm surveyed saying they planned to replace existing equity futures positions with ETFs, while 19% planned to do so with fixed income positions and 11% for their commodities positions. Greenwich Associates interviewed 123 European institutional investors – 58 pension funds, 46 asset managers and 19 insurance companies. The findings suggest the next 12 months will bring increases in both ETF adoption rates and assets under management. Approximately a quarter of the institutions were invested in ETFs already and 35% planned to increase their investments. Of those not yet invested in ETFs, 17% intended to start doing so. Another key driver is the proliferation of smart beta ETFs. Over a fifth of institutional investors invested in these products and 57% of current users planned to increase their allocations in the next year. Fergus Slinger, co-head of iShares sales at BlackRock, said: “ETFs are revolutionising the way institutions invest. We expect European usage to skyrocket as investors become more familiar with the precision and versatility ETFs afford – whether the aim is to address liquidity challenges in bond allocation, outperform broad market returns using smart beta strategies, or replace futures with ETFs to reduce costs.” BlackRock commissioned the report, which is called ‘ETFs in the European Institutional Channel’. ©2016 funds europe

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