Insurers flock to ETFs, and retail investors could benefit

Insurance companies are crowding into exchange-traded funds.

According to a survey conducted by badyst firm Greenwich Associates, more than one-third of US insurance companies were invested in ETFs in 2018. In total, they held 372 million shares, up 7 % compared to the previous year.

This increase is in part due to mega-capitalization companies – those with more than $ 50 billion in badets, as defined by survey badysts – increased by 39% their badets under management invested in ETFs, this area decreased by 3% due to market volatility, the survey said.

"It's really exciting to see big insurance companies embrace more and more ETFs," Todd Rosenbluth, Senior Director of ETFs and CFRA Mutual Fund Research, told ETF Edge on Wednesday. from CNBC.

They have largely turned to high-profile ETFs, or those whose badets are most easily converted into cash, said Rosenbluth.

Their most popular investments include:

What Rosenbluth said is that these companies "use the broader tools that exist, in a market capitalization-weighted way, and get visibility," he said. "This will really boost investor confidence, when they want to get out, know that a big institutional investor is on the other side of the head to do it."

Matthew Bartolini, Managing Director and Head of SPDR Americas Research at State Street Global Advisors, agreed that this move would benefit the average investor.

"The fact that they are trading the ETFs will increase the liquidity profile of all investors and reduce overall transaction costs, which are a significant part of this total cost of ownership," he said in a statement. interview with "ETF Edge".

And, at present, it is still possible for this segment of the ETF market to grow, said Bartolini and Rosenbluth. Rosenbluth pointed out that less than 1% of insurers' badets are currently invested in ETFs, meaning that significant increases could be considered.

"This needle can really move if some of these larger insurance companies are installing," Rosenbluth said. "This will actually generate overall liquidity and ensure that there is an investor on the other side of the market when a retail investor wants to get out of his existing position instead of going into the marketplace. worry about problems that may arise. "

And, according to Bartolini's estimates, "the rate of growth will continue" to a large extent.

"We have seen a recovery from 2016 to 2018, so … the percentage is likely to increase linearly," he said, adding that he could see it increase by 2% to 5% in next two or three years. three years.