Active asset managers will likely continue to use ETFs for asset allocation, in an effort to achieve alpha in balanced funds, asset allocation funds, defined contribution (DC) funds and annuities, sources at BlackRock predicted during the iShares Institutional Outlook 2013 media briefing.
State Street Global Advisors (SSgA) reported that ETFs had positive cash flows of $182.6 billion in 2012, marking a record high for the industry (see “ETFs Have Record Year in 2012”). Daniel Gamba, managing director for BlackRock’s iShares Americas Institutional Business, said this year also looks to be an outstanding year for ETFs. “2012 marked a record year for inflows into ETFs for the industry and iShares, as investors continue to use ETFs for the diversification and exposures they seek in their portfolios,” he said. “In the coming year, investors are likely to face continued market volatility while they search for yield in a low-rate environment. Given these dynamics, we see the trend of institutional investors using ETFs, particularly as part of the core of their portfolios, continuing in 2013.”
For 2013, BlackRock sources also predict growth opportunities for advisers who provide expertise about ETF portfolio construction and trading to other advisers seeking outsourced model portfolios.
Gamba foresees that in 2013, institutional investors will seek more liquidity—specifically, liquidity sources that provide market exposure to minimize cash drag. “So they will use ETFs to replace a part of their portfolios,” he explained.
Institutional clients are increasingly implementing overlays that include ETFs in order to mirror the risk/return profile of a portion or the entirety of their policy portfolio, BlackRock sources said. According to Greenwich Associates, the percentage of institutions implementing these strategies with ETFs increased from 3% in 2010 to 31% in 2012.