ETFs: Instruments of Choice for Latin American Portfolios

International Diversification and Tactical Adjustments Are
Main Applications

Shift to a risk-management focus

Shift to a risk-management focus: As they reposition portfolios for what they see as mounting market and geopolitical risk, Latin American institutions are increasing their use of ETFs, which are proving highly versatile tools for implementing specific changes.

Cost of the Trade

Indexation: Like their counterparts in the United States, Europe and Asia, Latin American institutions continue to move assets from active management to index strategies. With 88% of study participants naming ETFs as their preferred wrapper for index exposures, this transition of portfolio assets remains one of the biggest and most consistent sources of ETF demand.

Cost of the Trade

Strategic Exposures: Even as they stepped up their use of ETFs in tactical portfolio adjustments related to volatility and other market conditions, Latin American institutions continued adopting ETFs for strategic purposes such as obtaining fixed-income exposures, international diversification and tax efficiency—with the last achieved through the use of European UCITS.

Execution of the Trade

Appetite for Smart Beta: ETFs have also emerged as institutions’ vehicle of choice for smart beta strategies. Sustained appetite for factor-based approaches could actually accelerate demand for ETFs in 2019. More than 60% of current investors in smart beta ETFs plan to increase allocations to the funds in the coming year.

Shift to a risk-management focus

Shift to a risk-management focus: As they reposition portfolios for what they see as mounting market and geopolitical risk, Latin American institutions are increasing their use of ETFs, which are proving highly versatile tools for implementing specific changes.

Indexation

Indexation: Like their counterparts in the United States, Europe and Asia, Latin American institutions continue to move assets from active management to index strategies. With 88% of study participants naming ETFs as their preferred wrapper for index exposures, this transition of portfolio assets remains one of the biggest and most consistent sources of ETF demand.

Strategic Exposures

Strategic Exposures: Even as they stepped up their use of ETFs in tactical portfolio adjustments related to volatility and other market conditions, Latin American institutions continued adopting ETFs for strategic purposes such as obtaining fixed-income exposures, international diversification and tax efficiency—with the last achieved through the use of European UCITS.

Execution of the Trade

Appetite for Smart Beta: ETFs have also emerged as institutions’ vehicle of choice for smart beta strategies. Sustained appetite for factor-based approaches could actually accelerate demand for ETFs in 2019. More than 60% of current investors in smart beta ETFs plan to increase allocations to the funds in the coming year.

 

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How are these impacting investor’s portfolios?

Institutions are prioritizing risk management when it comes to portfolio construction. Main concerns investors face are:
Prioritizing Risk Management
strategic allocation
Latin American investors are still clearly using ETFs in strategic applications in both equities and Fixed Income portfolios.
With the implementation of defensive strategies investors are using more and more ETFs. Fuelling this, investors are continuing to replace other investment vehicles with the use of ETFs.
Defensive strategies
Incorporating esg
40% of institutions are incorporating ESG in their investment portfolios.