Fine-tuning asset allocation towards higher or lower risk assets in the short term can help maximise portfolio returns, while keeping market risks to a minimum, compared to a benchmark index.
Tactical asset allocation can provide investors with flexibility and short term planning within a long term strategy. This strategy benefits investors by providing a means to actively manage a portfolio in line with investment goals, risk tolerance and investment time horizon.
Global ETF assets under management 1
Launched the first US-listed ETF
Global number of ETF offerings 2
There are a number of options available to investors to implement tactical asset allocation, including exchange traded funds (ETFs). The unique structure of an ETF enables investors to buy or sell them at any time throughout the day.
The range of ETFs available to institutions is vast. At the end of December 2018, there were 7,199 exchange traded products (ETPs -which include ETFs and exchange traded notes), available globally3, providing exposure to almost every tactical asset allocation option an institutional investor could want. Beyond the core exposures to major indices, investors can use ETFs to access sectors and sub-sectors, thematics, commodities, fundamental factor tilts and more.
In addition to representing virtually every asset class, ETFs offer efficient vehicles for implementing a tactical idea. The flexibility enabled by ETFs' speed of execution and ease of use make them versatile and effective tools in an expanding list of institutional investors’ portfolio functions.
As a result, ETFs are becoming an increasingly popular means of taking on both tactical and strategic exposures needed for portfolio construction and adjustment.
ETFs Versatility Shines in Volatile Markets
In 2018, institutional investors increased their use of ETFs in making tactical adjustments to portfolio allocation – a move likely driven in part by institutions’ need to react quickly to the volatile market conditions and the deep sell-off in global equity markets during 2018.
Between October and December 2018, a new US ETFs survey from Greenwich Associates canvassed 181 institutional investors, including 37 institutional funds, 33 insurance companies/insurance company asset managers, 56 registered investment advisors and 11 investment consultants.
The study highlights that 72% of investors cite tactical adjustments as a primary application for ETFs4, up from 67% of participants in the previous year. Study participants say one of the main benefits of investing in ETFs is an ease of use that allows them to quickly and seamlessly integrate ETFs into strategies across portfolios and asset classes.
We launched the industry’s first US-listed ETF in 1993 as a cash equitisation vehicle for institutional investors. Since then, institutions remain some of the largest investors in ETFs, with usage continuing to expand across a wider range of investors and investment strategies. ETFs offer investors further benefits – they are low cost, simple, tax efficient and easy-to-access investments.
Providing unique insight into the fixed income market via a snapshot of both fixed income flows and holdings indicators, extracted from a wider data set that represents $10 trillion of assets, and PriceStats®, an innovative inflation tool tracking daily price changes of millions of online items.
1Source: Morningstar, as of March 31, 2019.
2Source: Morningstar, as of March 31, 2019.
3Source: Morningstar, as at 31 December 2018
4Source: ETFs: U.S. Institutions’ New Tool of Choice for Portfolio Construction, Greenwich Associates, Q1 2019