JaneStreet Inst ETF Trading Survey 2021
JaneStreet Inst ETF Trading Survey 2021
JaneStreet Inst ETF Trading Survey 2021
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INNOVATION, EFFICIENCY AND VERSATILITY FUEL GROWTH
Foreword
Despite a 30-year history, exchange-traded fund (ETF) adoption still felt new and nascent in many parts
of the world when this survey was first conducted in 2017. Today, ETFs are widely accepted as important
tools and usage has greatly expanded among institutions in Europe, Asia and Latin America. Over this period,
Risk.net’s conversations with traders and portfolio managers have noticeably shifted from understanding
the ETF wrapper and questioning its resilience to in-depth discussions around execution and how to most
efficiently shift market risk.
The approximately 8,400 ETFs listed globally are a result of growing demand for new products offering specific
exposures and strategies. This demand has driven the industry to innovate the types of ETFs available, ranging
from environmental, social and governance (ESG) and active strategies to those providing cryptocurrency
exposure. The responses and trends observed in this year’s survey strongly point to a maturing industry
characterised by traders and portfolio managers using ETFs in more sophisticated ways to improve overall
efficiency and help attain their investment objectives.
Globally, the ETF ecosystem continues to experience impressive asset growth and product innovation.
The industry has continued to build on the additional confidence placed in ETFs following their vital role in
facilitating efficient risk transfer during the extreme volatility experienced in 2020. Since the inaugural survey
four years ago, ETF assets under management have more than doubled globally and, earlier this year, surpassed
$10 trillion. ETFs have attracted net new assets at a rapid pace in 2021, recording net inflows of over $1 trillion
year-to-date.
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SURVEY REPORT – INSTITUTIONAL ETF TRADING
Key findings
•G
lobal institutions prefer to trade on risk
Risk pricing was the execution style most favoured by respondents. This preference was consistent across
regions, with at least 65% of traders in each region reporting that risk trading was their most common ETF
trading method.
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INNOVATION, EFFICIENCY AND VERSATILITY FUEL GROWTH
“
We don’t do very many NAV [net asset value] trades these days. One of the reasons is due to the increased
volatility we’ve seen since the start of the pandemic. This volatility means that, by the time we complete the
trade, the price could have dramatically changed and moved against us
Jason Conan-Davies, Nutmeg
“
We trade Asia- and US-listed ETFs, but the majority of our trading involves ETFs listed in London. With
on-screen liquidity there is an issue, so most trades are done via blocks. Since our traders are executing on
behalf of the portfolio managers, we will tailor the execution approach depending on their target benchmark
Christopher Chua, Eastspring Investments
1. Which execution method does your firm most commonly use when trading ETFs?
70%
16%
12% 2%
Risk trading Agency brokerage NAV trading Other
Due to rounding, some percentage figures throughout this report may not total 100%.
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SURVEY REPORT – INSTITUTIONAL ETF TRADING
An impressive 84% of survey respondents reported using RFQ platforms for 25% or more of their ETF trades, with
32% using them for at least 50% of their trades. Only 1% of respondents reported not using RFQ platforms in
any capacity.
“
We have moved to [RFQ platforms] exclusively because it is straightforward and very efficient. You can click
and the record is also there. RFQ is now 100% of our trading
Parinya Masertsri, Thai Life Insurance
“
I would say, for most of our risk [trading], we do RFQ these days. We used to use chat but, because you have
to watch chats for five or six brokers that can be a little tedious. Being able to pair orders, to offset trades if
there’s some correlation, has made it really helpful [in achieving] better pricing
Alyson Strode, Horizon Investments
2. How much of your firm’s ETF trading is undertaken through RFQ platforms?
15%
1–25%
30%
25–50%
50–75%
More than 75%
52% None
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INNOVATION, EFFICIENCY AND VERSATILITY FUEL GROWTH
“
We’re really keen on socially responsible investment and ESG ETFs. As the markets have become more
mature and more products have come out, this has helped us greatly in building ESG portfolios. We
believe that, ultimately, everything will become ESG-specific and that you’ll have to have some kind of
ESG element in your portfolio
Jason Conan-Davies, Nutmeg
“
In my opinion, it will be thematic. More and more retail investors have been playing a role lately. I also
think other institutions do the same as myself. We look at thematic ETFs on a short-term basis to quickly
access an idea
Parinya Masertsri, Thai Life Insurance
3. Which ETF products do you expect to grow most in your region over the next year?
13% 15%
10% 13%
10%
11%
11% Cryptocurrency
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SURVEY REPORT – INSTITUTIONAL ETF TRADING
“
We have one fund in particular with very specific risk parameters. We fully replicate the underlying basket
but, instead of buying options on the individual equities, we use index options. We can also use ETF options
and it’s nice to have that additional avenue
Dan Zaccardelli, Horizon Investments
200
100
0
2018 2019 2020 2021
Source: Options Clearing Corporation
4 40
ETP launches
3 30
2 20
1 10
0 0
2020 2021
Source: Bloomberg. Net flows are cumulative since November 1, 2020, and product launches are overall cumulative to date
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INNOVATION, EFFICIENCY AND VERSATILITY FUEL GROWTH
“
Traditionally, we used futures for their low cost and liquidity. But, as ETFs have proliferated and their liquidity
has grown, we’ve found we can achieve much lower tracking error by using ETFs to manage the cash
component of our portfolios and to hedge
Enrico Cacciatore, Voya Asset Management
“
The emergence for us has been more that we now get ETF flow from investment teams we don’t trade
any other product for. [In Henley] we get ETF flow from fund managers in New York, Taiwan, Hong Kong
and Tokyo (in addition to Emea). So it’s interesting that it feels like those investment teams are using these
products more
Paul Squires, Invesco Asset Management
“
We primarily trade ETFs for our tactical funds. We use those because it’s much easier to trade those ETF
baskets, to get those large macro or large factor exposures than it is to create a basket of stocks, and trade
all those. Even with fixed income. To get a book of bonds or for treasuries, it’s just easier to access an ETF
that does all that
Dan Zaccardelli, Horizon Investments
67%
56%
46%
17%
9%
Tactical allocation Liquidity Strategic allocation Transition Exposure to difficult
management to access markets
Respondents were invited to select all that applied.
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SURVEY REPORT – INSTITUTIONAL ETF TRADING
“
[With models] we start to blend some of our equity products with our fixed income products. And then we
kind of move down the risk spectrum, so you can get an all-equity strategy, all the way down to an 80%
fixed income strategy. It allows us to keep the underlying asset class baskets consistent. But we’re able to
move throughout those risk spectrums a lot more nimbly with the ETFs
Alyson Strode, Horizon Investments
ETFs in multi-asset
model portfolios 63%
ETF-specific
model portfolios 30%
We do not use
model portfolios 4%
No 3%
Respondents were invited to select all that applied.
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INNOVATION, EFFICIENCY AND VERSATILITY FUEL GROWTH
Evidence of ETFs adding to overall liquidity is not only confined to periods of volatility. A number of ETFs have
developed into institutional trading vehicles that commonly display volumes that rival or exceed the volumes
of their underlying assets. These types of products develop deep secondary liquidity and can allow investors to
shift sizeable risk without market-makers needing to access the underlying liquidity. For example, over a 100-day
period this year, a particular emerging market equity ETF traded more than $180 billion in the secondary market
without registering a net creation or redemption.
Respondents seem to have taken notice of the resilience ETFs displayed in 2020. Across all regions, 71% reported
feeling that fixed income ETFs were additive to liquidity. This sentiment was shared across regions, as a majority
of respondents in each region agreed. In all, just 3% of respondents believe ETFs are not additive to liquidity in at
least one of the three major asset classes.
“
With fixed income [ETFs], we trade really large tickets via RFQ fairly easily. There’s a fair bit of liquidity, really,
at secondary market levels
Jason Conan-Davies, Nutmeg
“
In terms of turnover, you get a lot of these allocators, such as asset allocation funds, retirement-driven funds,
that are constantly, on a monthly or quarterly basis, readjusting their weightings based on performance.
That flow has helped provide a fair amount of liquidity globally for most of the known ETFs, and it’s made it
fairly cost-effective to trade with tight bid-ask spreads
Enrico Cacciatore, Voya Asset Management
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SURVEY REPORT – INSTITUTIONAL ETF TRADING
“
I always look beyond the liquidity on screen. If in doubt, I always talk to the ETF issuer, which I think is very
important. You need to talk to the issuer’s capital markets team to get their perspective
Christopher Chua, Eastspring Investments
“
When you trade ETFs, you need a good relationship with the counterparties you’re trading with. We like the
market-makers who spend time with us who are prepared to give us a nice pre-trade analysis on certain
ideas we may have, discuss ideas and the latest with us, spend time learning what we’re trying to achieve
and telling us what they want to achieve. Such information is all conducive to good execution
Jason Conan-Davies, Nutmeg
“
I have seen some execution and analysis on our ETF trading. However, it comes down to trust in the data.
I have a fairly heavily qualified belief in the quality of the TCA product on ETFs, which is unusual for me
because I’m a huge advocate of the use of execution analysis
Paul Squires, Invesco Asset Management
9. How does your firm most often conduct pre-trade liquidity analysis?
Issuer capital
markets teams 62%
Indicative quotes
from market-makers 27%
Other 7%
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INNOVATION, EFFICIENCY AND VERSATILITY FUEL GROWTH
Conclusion
The ETF ecosystem has continued to experience unprecedented growth and the 2021 survey highlights just how
expansive it has become. Product innovation and reinforced confidence in ETF liquidity are enabling traders and
portfolio managers to find novel uses for ETFs in their portfolios. Traders continue to leverage their execution
expertise to select the ETF execution strategy most closely aligned with the objectives of each trade. Although this
report has highlighted a number of factors that confirm just how mature the industry has become, there are no
obvious signs pointing to growth slowing in the foreseeable future.
Acknowledgements
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SURVEY REPORT – INSTITUTIONAL ETF TRADING
Methodology, audience
profile and qualifying questions
The report’s findings are derived from surveys conducted with senior buy-side ETF traders worldwide,
complemented by a series of telephone interviews. From March to September 2021, Risk.net surveyed 380
buy-side ETF traders globally.
Insurance company 3%
Hedge fund 2%
North America 30% Fixed income trader who also trades ETFs 23%
What is the current level of assets under On average, what is the notional volume
the management of your institution? of ETF trades you execute per month?
$50 million–100 million 46%
$10 billion–100 billion 50%
$100 million–250 million 12%
More than $100 billion 36% More than $250 million 3%
12 risk.net Q4 2021
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