Investors Say These Are the Top ETF Providers and Benchmarks

Global assets held by ETFs pierced the $7 trillion barrier in September 2020, according to the consultancy and research firm ETFGI.¹ The year proved to be another banner one for the funds despite the Covid-19 pandemic – and in part due to aggressive stimulus packages pushed forward by policymakers around the world to dampen the effects the virus had on economies. Among U.S.-listed ETFs alone, 2020 inflows shot up 55% from the $326.3 billion recorded in 2019, according to ETF.com.²

“Post-March and April [2020], we put money into ETFs because we wanted to focus on a specific index or ETF. We believed that we would see a beta rally as the market in general came back up, so we were able to participate. We put money into a few active, high-conviction managers that we thought would bounce back, but a lot of the money that we invested into equities went to ETFs,” said the CIO of a foundation interviewed as part of a new global survey, Managing Market Volatility in 2021: What institutional investors did in 2020 – and what they learned.

Among other results, the survey reveals why investors opt for one ETF over another, and which ETF providers they prefer. The survey of 766 institutional investment decision makers at insurers, endowments, family offices, foundations, pensions, and asset management firms was conducted by Institutional Investor during Q3 2020. The timing of the survey means participants were able to reflect on how they used ETFs during the heightened volatility early in the year.

Among the more interesting results to emerge from the Institutional Investor survey, three stand out, namely:

• An ETF’s benchmark index is the second most important contributor when choosing among ETFs, according to 53%³ of respondents, far outpacing transaction costs and management fees, among others.
• MSCI, S&P, and FTSE Russell are the most commonly used benchmarks for equities among all survey respondents, and – drilling down a bit farther – for factor-based and sustainable investing strategies. S&P, FTSE Russell, and Bloomberg are the preferred benchmark indices in fixed income among all survey respondents. “Investors are increasingly using index products in their asset-allocation process to target specific exposure to countries, sectors, or factors, with added flexibility to apply any views on ESG and climate change,” said Raman Aylur Subramanian, Managing Director and Head of Equity Solutions Research for Americas and EMEA at MSCI.
• Nearly 7 in 10 (69%)⁴ respondents said portfolio construction is the value-added service from ETF providers that is found to be most useful. Asked to identify their ETF provider of choice, survey respondents named BlackRock/iShares as the top choice globally (24%).⁵ State Street/SPDR ranks second globally, with 12%, followed by Invesco and Vanguard, at 9% each, and Wisdom Tree and ProShares, at 5% each.⁶

Other influences on ETF selection

Not surprisingly, AUM, liquidity, and trading volume are the most important considerations in selecting an ETF, according to 69%⁷ of survey respondents. Other than the focus on the benchmark index already noted, noteworthy contributors to the decision-making process for specific ETF use include brand and market position (48%), historical performance (46)%, and value-added services from the ETF provider (45%).⁸ In addition, when evaluating ETFs, survey respondents are likely to use an electronic market data and trading platform (64%); tools provided by asset managers (62%); and broker-dealer analysis tools (60%).⁹

In addition to portfolio construction, 60%¹⁰ of survey respondents said their expectations of ETF providers include client service teams, market insights, and education. Next on the list of expectations are portfolio consulting solutions (such as fund comparison, index and ETF deep dives, and product expertise, 56%), and portfolio modeling and trading tools (51%).

Download “A Preference for Large, Liquid ETFs Linked to the Optimal Benchmark,” the fourth chapter of Managing Market Volatility in 2021: What institutional investors did in 2020 – and what they learned.

¹ _{ETFGI.com, as of Sept. 9, 2020.}

² _{ETF.com, as of Jan. 4, 2021.}

³ _{Of 762 respondents.}

⁴ _{Of 762 respondents.}

⁵ _{Of 762 respondents.}

⁶ _{An additional 19 firms – none of which earned a share of 5% or more – received votes from survey respondents. Ranking is not based primarily on ETF provider, asset manager, or investment advisor client evaluations. Ranking is based on 762 responses to the question: “Which firm is your ETF provider of choice?” in this global survey of institutional investors conducted by Institutional Investor. Ranking is not representative of any one client’s experience. No asset manager, advisor, asset owner, or ETF provider paid a fee or was paid a fee to participate in the survey. The ranking of any ETF provider is not indicative of the future performance of any ETF, ETF provider, asset manager, or investment advisor.}

⁷ _{Of 762 respondents asked to choose “all that apply” among seven possible answers.}

⁸ _{Of 762 respondents asked to choose “all that apply” among seven possible answers.}

⁹ _{Of 762 respondents.}

¹⁰ _{Of 762 respondents.}