GLOBAL - ETFs are experiencing explosive product growth and offer untapped potential for institutional investors, according to a State Street report.
The Vision Focus report states although ETFs have nearly US$1trn in assets under management, institutional investors often to do not take full advantage of these vehicles.
State Street Global Advisors senior managing director Anthony Rochte says ETFs are gaining traction in this time of economic uncertainty, market volatility and increased scrutiny over investment management fees.
He adds ETFs enable investors to express a tactical view on an industry, commodity or asset class, while providing diversified, low-cost market exposure.
However, in order to fully maximise the potential offered by ETFs, Rochte says there must be continuing dialogue with institutions and the provision of educational resources to explain the expanding range of uses for these funds.
The report cites current methods of using ETFs among institutional investors, including cash equitization, core-satellite strategies, asset allocation and tax management. It also reveals regional differences in the development of the ETF market and discusses regulatory changes.
State Street Global Advisors senior managing director James Ross says: "ETFs with reasonable spreads, sufficient liquidity, low expenses, minimal tracking error and well-constructed underlying indices provide the best prospects for success."
The report comes just a month after a controversial report by consulting firm Watson Wyatt, now called Towers Watson, urged caution around ETFs. The consultant said ETFs were an unattractive long-term investment option for pension funds, expensive, and contain counterparty risks. (Global Pensions; December 9, 2009)
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