Liquid Alternative ETFs on Institutional Shopping Lists

Assets at Liquid Alternative ETFs could double over the coming year.

A study commissioned by IndexIQ reveals that there could be a surge in institutional interest in liquid alternative ETFs. This trend could push up their assets to $114 billion, or double their current value, in the coming 12 months.

Liquid alternative ETFs are a kind of investment vehicle that provide exposure to alternative investment strategies with the added advantage of liquidity through daily transactions. Alternative investments do not fall into the common investment categories of stocks, bonds, or cash. These include private equity or venture capital, hedge funds, managed futures, commodities, real estate, cryptos, and derivatives contracts.

Further, these vehicles offer the advantage of diversification.

Greenwich Associates conducted the study

The study, covering 107 senior professionals, also revealed further insights into the institutional positioning on liquid alt ETFs. Nearly 10% of these investors are looking to boost allocations to these instruments in the coming year. Further, 20% of investors not having exposure to these ETFs plan to assign a maiden allocation over the same period.

According to the study, the main attractions for these trends are low costs, better liquidity, transparency, and diversification benefits.

Outlook for liquid alternative ETFs

However, these vehicles are still relatively new and novel for institutional investors, with only 10% having experience in these investments. Moreover, liquid alt ETFs currently represent about 3% of assets of these investors, or approximately $47 billion.

“Drawing on data on institutional demand for alternatives classes and adoption rates of ETFs in other asset classes, the paper projects a trajectory of further long-term growth for liquid alt ETFs in institutional portfolios,” said the research paper.

[Related Story: IndexIQ And Nasdaq Dorsey Wright Tie Up to Offer A Liquid Alternatives ETF Model  ]

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