What's driving the continued growth of ETF adoption among institutional investors? Explore the expanded range of ETF applications across portfolio types and objectives.
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How and Why Institutions Are Evolving Their ETF Usage
How are institutional asset owners using ETFs today, and how has it evolved over time? For more than a decade, North American institutions have used ETFs to support their investment process. At first, many allocators used ETFs for tactical needs such as:
- Manager transitions
- Portfolio completion
- Liquidity management
But ETF use has expanded…
A 2026 study from Crisil Coalition Greenwich, sponsored by S&P Dow Jones Indices, surveyed 150 institutional investors across the U.S. and Canada to better understand how and why they use ETFs. The findings point to a new normal.
ETFs are no longer viewed by institutions as short-term tools only. They are increasingly being used by institutional investors for long-term strategic allocations. Today, more than half of North American institutions surveyed use ETFs. And among institutions that do not currently use ETFs, a majority say they are actively considering them. So, what’s driving adoption?
Institutional investors point to several key ETF characteristics from their perspective:
- Liquidity
- Ease of use
- Low management fees
- Quick access to markets
For both equities and fixed income, liquidity ranked as the top reason institutions use ETFs. With these attributes in mind, institutions are increasingly turning to ETFs to replace other wrappers, such as mutual funds and separately managed accounts.
As institutions increase their ETF allocations, they are also expanding the ways in which they use them. According to the study, 63% of passive ETF assets in North American institutional portfolios are now categorized as long-term strategic allocations, a shift from their traditional tactical usage. Holding periods tell a similar story as 46% of institutions surveyed report passive ETF holding periods of more than two years.
As ETF use becomes more strategic, understanding how the strategy performs and comparing it to its underlying index matters to institutional asset owners. According to the study, institutions evaluating index-based ETFs look closely at:
- Expense ratio
- Liquidity
- Trading volume
- Tracking error
- Benchmark construction
They also evaluate index providers based on:
- Methodology consistency
- Rigor
- Transparency
- Cost efficiency
- Benchmark liquidity
While ETFs are not new to institutions, their use cases have clearly evolved and they are being broadly applied across asset classes and portfolio functions by North American institutions.
To explore the full report, read ETFs in Institutional Portfolios: The New Normal at spglobal.com/spdji.
