Pension Insurers Turn to ETFs for Efficient Investing in Global Equity Markets

Pension insurers are increasingly turning to exchange-listed funds (ETFs) for their investment strategies. According to a recent report by Talouselämä, two major pension companies, Ilmarinen and Varma, are particularly fond of listed equity funds.

Elo allocated 55% of its stock fund investments to stock ETFs at the end of last year, accounting for just 4% of all equity investments and 2% of the total portfolio. Niko Syrjänen, director of equity investments at Elo, explained that more than 90% of their equity investments are in direct shares due to cost-effectiveness and better alignment with sustainability goals.

Varma’s Director of Investments, Markus Aho, pointed out that ETFs offer a cost-effective and liquid alternative for implementing global equity investments. However, he noted that unlisted funds are used in cases where higher returns or exposure to more limited or illiquid markets are sought.

Juha Venäläinen, stock strategist at Ilmarinen, highlighted the advantages of ETFs in providing affordable and efficient exposure to stock indices. He also mentioned that unlisted funds allow for leveraging the portfolio manager’s expertise. Venäläinen cautioned that direct stock investments are carefully considered in relation to fund investments, taking into account cost differences.

The report also mentioned specific ETF investments by pension insurers, such as iShares’ Climate Conscious & Transition MSCI USA fund and Vanguard’s financial sector ETF. While ETFs offer liquidity and lower costs, pension insurers remain cautious about potential risks and stress scenarios that could affect market liquidity. Despite these concerns, the use of ETFs has become a central part of pension insurers’ investment strategies, providing diversification and cost-effectiveness in a volatile market environment.

In conclusion, while ETFs have gained popularity among investors including occupational pension insurers, it is important for these institutions to carefully consider the benefits and risks before investing in them. Nonetheless, many pension companies view listed equity funds as an effective way to implement global equity investments while still maintaining control over portfolio managers’ expertise in specific markets.

Overall, the use of exchange-listed funds is becoming increasingly common among occupational pension insurers as they seek to diversify their portfolios while also maintaining control over costs. The rise of ETFs has made it easier for these institutions to gain exposure to various stock indices while minimizing costs associated with traditional mutual funds.

However, as with any investment strategy