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ETF use by European institutional investors grows 20%

EUROPE – The number of institutional investors using exchange traded funds (ETFs) or HOLDRs baskets of stocks is continuing to increase, particularly in Europe, according to research by Morgan Stanley.

In Europe, the use of US listed ETFs and HOLDRS by institutional investors has grown 20% over the past year, compared to 15% worldwide. Over the past three years, the number of European institutions using US ETFs and HOLDRS has grown from 32 institutions to 295, says the research.

In the past year significant increases in the number of institutions using US ETFs have occurred in Italy, up 45% from 20 to 29 institutions; the UK, up 33% from 43 to 57 investors; and Spain, up 24% from 45 to 56 institutions.

In terms of holding European-listed ETFs Spain is top of the leader board with 10 institutions. Sweden, Germany and the UK follow respectively.

Furthermore, use of ETFs by investment funds is expected to continue to increase over the coming year in both number of users and amount invested. This is as a result of recent exemptive relief granted by the SEC in the US and from the implementation of UCITS III in Europe, says Morgan Stanley. Currently a UCITS fund is typically allowed to invest only up to 5% of its assets under management in other funds including ETFs that are UCITS compliant. Under UCITS III, however, up to 100% of a UCITS fund’s net assets can be invested in other funds subject to certain guidelines.

ETFs (exchange-traded funds) are open-end investment funds that trade on exchanges and HOLDRs are produced by Merrill Lynch.

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