LONDON, (Reuters) – The number of hedge funds using exchange traded funds (ETFs) has increased 72 percent to 179 from 104 over the past year, Morgan Stanley said in a sector survey on Monday.
ETFs are listed, trade like stocks, and track indexes of equities, bonds or other assets and are one of the fastest-growing areas of global equities markets, accounting for around 25 percent of total trading volume on U.S. stock markets. Like stocks, the funds can be sold short and so are popular with hedge funds who are seeking absolute investment returns regardless of market direction, or which want to maintain exposure to particular sectors while parking capital between executing trading strategies.
ETFs are also widely used for accessing areas with less liquid indexes, such as mid-cap stocks, or in emerging markets with similar liquidity or regulatory investment hurdles.
Morgan Stanley said the number of institutional investors holding one or more U.S. listed ETF or HOLDR (holding company depository receipt allowing investors to buy or sell a basket of stocks in a particular sector) has grown by 11 percent to 1,571 from 1,413 over the past year.
Growth has been particularly strong among institutions in the U.S. and Switzerland, and Morgan Stanley said it expected the trend to continue due to the lifting of regulatory constraints on mutual funds investing in ETFs in Europe and the U.S.
Over the past 14 months a number of ETF managers, including the two biggest, Barclays Global Investors and State Street, have received an exemptive order from the U.S. Securities and Exchange Commission (SEC) permitting mutual funds to invest in their ETFs in excess of previous limits.
Under UCITS III EU "fund passport" rules, which allow the cross-border selling of investment funds and are in the process of being implemented across Europe, up to 100 percent of a UCITS fund’s net assets can invested in other funds including ETFs, subject to certain restrictions.
Currently a UCITS fund is typically allowed to invest up to 5 percent of its assets under management in other funds including ETFs that are UCITS compliant.
Fonte: Reuters
