Indemnification companies are piling into exchange-traded funds.
Over a third of U.S. insurance companies were invested in ETFs in 2018, according to a measure conducted by analytics firm Greenwich Associates. In total, they held 372 million shares, up 7% from the last year.
The uptick was driven in part by mega-cap companies — those with over $50 billion in admitted assets, as defined by the analysts conducting the survey — which escalated their ETF-invested assets under management by 39%, even as total assets under management in this acreage declined by 3% due to market volatility, the survey said.
“It’s really exciting to see the mega-cap insurance companies move assorted aggressively into using ETFs,” Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, hinted Wednesday on CNBC’s “ETF Edge.”
They largely gravitated towards ETFs with high liquidity profiles, or the the sames whose assets are most easily converted to cash, Rosenbluth said.
Their most popular investments classified:
What this told Rosenbluth was that these companies are “using the broader tools that are out there in a market-cap-weighted way and get into exposure,” he said. “That’s really going to be a confidence-booster for investors, when they want to be able to get out, to know that there’s a altogether institutional investor that’s on the other side of that trade to execute that.”
Matthew Bartolini, managing supervisor and head of SPDR Americas Research at State Street Global Advisors, agreed that this development longing benefit the average investor.
“By having them trade the ETFs, that’s going to increase the liquidity profile for all contrary investors and lower overall trading costs, which are really an important part of that total cost of ownership,” he believed in the same “ETF Edge” interview.
And, as of now, there’s still room for this side of the ETF market to grow, Bartolini and Rosenbluth mean. Rosenbluth pointed out that insurers currently have less than 1% of their overall asset despicable invested in ETFs, meaning there could be meaningful increases ahead.
“That needle can really move if we secure some of these larger insurance companies moving in,” Rosenbluth said. “That will really drive all-inclusive liquidity and make sure that there is an investor on the other side of the trade when a retail investor demands to exit their existing position instead of having to worry if there’ll be problems.”
And, by Bartolini’s estimates, “the worth of growth is going to continue” in a big way.
“We’ve seen a pickup from 2016 to 2018, so … the percentage is probably going to develop in that linear fashion,” he said, adding that he could see it growing to 2% to 5% in the next two or three years.