Institutional investors to widen use of ETFs: State Street Global Advisers

3 March 2011

| By Ashleigh McIntyre |

The exchange-traded fund (ETF) market is set to grow off the back of the proposed Stronger Super reforms that will make transparency a key issue for institutional investors, according to State Street Global Advisers (SSgA).

Frank Henze, managing director of the SPDR ETFs in the Asia Pacific region, said he believes ETFs will play very well in the reform climate, and as their popularity grows, so too will the ways in which institutions use them.

At the moment, ETFs are being used for three main investment applications: cash equitisation, rebalancing and transition management, as well as tactical overlays.

Henze believes from looking at global trends, Australian institutional investors will start to use ETFs for more sophisticated purposes like core-satellite investing, where the ETF could represent either the core or the satellite, as well as for tactical asset allocation on a day-to-day basis.

According to Henze, the popularity of ETFs among institutional investors is growing because they are tradeable and flexible.

“You have infinite liquidity so to speak… you have a constantly priced investment tool which is a flexible element that you can use to adjust your allocations,” he said.

“The second reason ETFs are becoming more popular is because they are covering more asset classes and types of investments.

“ETFs give you a bigger variety of investment opportunities that enable you to turn your investment strategy into a reality,” he said.

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