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Canadian institutional investors are shifting more assets into exchange-traded funds and now have the highest allocation to ETFs among their global peers.

Canadian institutions that use ETFs allocate an average 18.8 per cent of total assets to the funds, up from 15.2 per cent last year and the highest globally, according to a new report conducted by Greenwich Associates.

The survey found that ETFs attracted new institutional users in Canada in both equities and fixed income, as well as in both domestic and international markets. Almost half (46 per cent) of survey participants invest in non-market-cap-weighted/smart beta ETFs, with demand last year focused largely on minimum-volatility ETFs, designed to protect investors from a spike in volatility similar to the one seen in February, Greenwich said in the report.

Canadian institutions are using the funds to obtain “core” investment exposures and diversification benefits. Study participants noted using ETFs because they are easy to use, fast to execute, liquid, simple, relatively cheap to trade, and provide diversification in a single trade.

“The steadily expanding use of ETFs reflects institutions’ embrace of the funds as an effective source of beta exposures that they are using alongside – and at times in place of – derivatives,” Greenwich said in the report.

BlackRock’s iShares ETF business remains one of the top choices for Canadian institutions, with 91 per cent holding iShare funds, 56 per cent investing in ETFs from BMO Asset Management and Vanguard, and 31 per cent using products from Horizons ETFs Management (Canada) Inc.

“This study confirms the trends we’re seeing on the ground,” says Pat Chiefalo, head of iShares Canada at BlackRock in a statement. “Institutional investors’ use of ETFs is not only growing but broadening, as they deploy the funds in increasingly diverse ways to implement a range of strategies and realize new benefits.”

The survey, which included 52 Canadian institutional investors, found more than half the participants (48 per cent) consist of asset managers. The remainder of the research participants included endowments, foundations, corporate defined-benefit plans, public pension funds, insurance companies and insurance asset managers, along with representation from family offices, investment consultants and other segments.

Most study participants are large institutions. Approximately 45 per cent of the institutions in the study have assets under management of $5-billion or more, and more than one in five have assets under management topping $50-billion.