If there’s one question that ETF wonks like me get asked all the time it’s, “Who owns ETFs?” More specifically, “Who owns this particular ETF?”
There are lots of reasons why a good answer to this question could be useful. If you’re an ETF issuer, you’d certainly like to know who’s been buying your products. If you’re a hedge fund, you might be looking for signals in the patterns of other investors' trades. If you’re an institutional investor, you might be trying to see if your allocations were representative or contrarian. As an individual investor or advisor, you might take comfort in seeing big endowments in a fund you’re interested in.
Because ETFs are exchange traded (it’s in the name after all) and settle just like a stock, it can be very difficult to know with absolute certainty who has beneficial ownership of every share. Even the Depository Trust Company, which has the ownership records for all ETFs and stocks in the US, doesn’t actually know which funds an individual owns. Instead, they just know that a certain number of shares are sitting at Charles Schwab or E*Trade, and from there, it’s that custodian’s responsibility to maintain the individual ownership records.
Digging into Filings
But there are ways of ferreting out some of this. Large institutional investors are generally required to make quarterly filings of what they own on SEC form 13F. Mutual funds have to disclose their holdings at least once a quarter, and so on. It turns out that all those reports rolled together can explain more than half of the $2.2 trillion in the US: listed ETFs.
It shouldn’t be a surprise to see “Investment Advisor” and “Wealth Management” as the top categories here. Advisors, whether captive to a wirehouse like Morgan Stanley or independent, have been a huge growth engine for ETFs nearly since their introduction. What might be surprising to some investors is how small the allocations from hedge funds, endowments, and pension funds are. While $67 billion across those groups is real money, it suggests that penetration into those markets still has room to grow.
Digging under the hood, I think it’s interesting to see the kinds of funds these different groups use. For instance, the most used funds by advisors and wealth managers probably aren’t a big surprise.
These top 10 lists show some of the largest ETFs in the market, as you would expect – industry giants like the SPDR S&P 500 and the iShares Core US Aggregate Bond ETF. But there are some quirks here. Notice the big positions in both growth and value (IWD and IWF) and the surprising popularity of the Vanguard REIT fund with private banking clients. Style rotation is clearly alive and well in America’s biggest private banks.
The other thing to notice is just how large these positions are relative to the size of the funds. Between private wealth and the advisory market, well over half of a fund like EFA is accounted for. The advisor market is clearly of huge importance to ETF issuers, and the switch from one product to another can be punishing. Just notice what’s not on here: large positions in the iShares Emerging Markets ETF, EEM. EEM lost the crown for most popular emerging markets ETF with advisors to Vanguard over the past decade, which is why you see the Vanguard Emerging Markets ETF here instead.
Looking at brokers, it’s unsurprising to see both some of the most liquid — and most speculative — ETFs on the market. ETFs serve a slightly different purpose here, allowing for short term positions in narrow sectors of the market.
What about the “smart” money — hedge funds? With the caveat that not every hedge fund has to disclose its holdings, there are still a few interesting tidbits.
Hedge funds are looking further afield than the average wealth manager, with big positions in gold, gold miners, high yield bond funds, and even China, all absent from the top 10 list of advisors. That’s not to say that advisors don’t own, say, the SPDR GLD Trust — they just own it further down in their portfolios than the average hedge fund.
It’s also the case that since we’re just looking at ETFs, we’re not capturing how ETFs compare to the other exposures inside hedge funds. Hedge funds are far more likely to be getting market exposure from individual stocks or derivatives, so what we’re seeing is a concentration on areas where it’s difficult for most firms to get exposure directly without an ETF: emerging markets, junk bonds, and physical gold.
The Point (and I Do Have One)
While it’s fun to take a peek under the covers of different investor groups and compare them to how our own money is invested, I think the broader lesson here is simple: all ETFs are not created equal. Different kinds of investors have very different needs. Where a trader needs liquidity, a long term asset allocator will focus on total costs and tax efficiency.
The beauty of the ETF wrapper is that there’s something for everyone.