$50billion Could Flow from Insurers to ETFs

Insurers are expected to double their ETF wagers over the next 5 years, shows an analysis

The booming demand for hot exchange-traded funds has finally caught up with the staid, sleepy insurance industry.

US insurers are the latest group of investors to start buying ETFs en masse, with one of the fastest adoption rates among institutions. And they’re not done yet, according to JPMorgan Chase & Co’s Mark Snyder, who helps oversee funds for the industry. Insurance companies are holding an estimated $200 billion in cash and another $80 billion in equities that could be reallocated, he said, and by shifting some of their portfolios $25 billion to $50 billion could flow into ETFs.

“It’s pretty clear that it is an area of pretty dramatic growth,“ said Josh Penzner, head of BlackRock Inc’s iShares fixed-income and insurance sales. “Insurers, they’re not quick to change, however they’re really looking at their investment processes and looking at ways they can evolve.“

Insurance companies can invest premiums in funds while waiting to pay out claims. In recent years, they’ve suffered from low interest rates because their portfolios are mostly composed of bonds. In 2014, only 26% of the firms had their reserve assets in ETFs, according to a Greenwich Associates survey.

Now that’s changing, with insurers expected to double their ETF wagers over the next five years, according to an analysis by S&P Dow Jones Indices.


The shift is another setback for traditional managers who have struggled to beat their benchmarks as ETF purveyors offer cheaper and more complex products. US insurers had $17.7 billion invested in hedge fund strategies at the end of 2015, and companies such as MetLife Inc have been scaling back.

They’re turning to ETF strategies like smart beta, which use computer models to augment passive holdings and promise to replicate everything a talented stock picker brings to the table except the emotions and fees. What’s more, demand for the newest smart beta product ­­ multifactor ETFs ­­ is strongest among insurers than any other investor class.

Source : Economic Times

Date : 21-11-2016

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