An Introduction to ETFs for Central Banks

As the ETF industry matures, we have seen central banks and public institutions increase their use of this investment vehicle. Large investors have found that ETFs can help with a variety of challenges, such as access to liquidity, transition management and exposure management. Fixed income ETFs, in particular, have seen rising uptake after withstanding the market turmoil caused by the onset of COVID in 2020.

With assets now approaching $10 trillion globally, the ETF industry has seen a phenomenal rate of growth during the last 10 years. The pace of inflows into these financial instruments continues to gather pace.

Last year alone saw well over $1 trillion of new assets added to the ETF industry. While this growth has largely been driven by US-domiciled products, we are beginning to see an acceleration of flows into Europe and Asia-domiciled ETFs.

ETFs have, to some extent, often been viewed as more of a “retail” financial product, with personal investors using them as a cost-effective way of building portfolios. However, we have started to see larger and more sophisticated institutions using ETFs for a variety of purposes.

In our latest whitepaper, written in collaboration with Jane Street, we give an overview of the key factors that investors should consider around incorporating ETFs into their portfolios. We also look at both theoretical and actual case studies that illustrate how and why we have seen central banks and other public institutions using ETFs.