How Institutions are Rethinking ETFs

Drawing on primary interviews and Cerulli’s proprietary data and custom market analysis, this new research provides a multidimensional perspective on how institutional asset owners are putting ETFs to work. Below is an executive summary.

Assets Are Growing Rapidly

ETF use has nearly doubled in the past five years: Cerulli estimates that ETF assets held by institutional asset owners totaled $337.2 billion as of year-end 2025, boasting a 14.4% five-year compound annual growth rate (CAGR) from 2020 to 2025.

This growth rate is comparatively higher than the 5.0% five-year CAGR of the entire U.S. institutional market. This is even more significant for channels that are heavier ETF users, such as U.S. endowments (38.1%), U.S. foundations (32.5%), and U.S. public defined benefit (DB) plans (23.6%), which all boast higher five-year CAGRs than the entire ETF industry (19.6%).

Pensions and nonprofits lead the way: As of year-end 2025, U.S. ($103.4 billion) and Canadian (US$30.2 billion) public DB plans collectively invested approximately $133.7 billion in U.S. ETFs.

Of the top-25 institutional asset owners by ETF assets under management (AUM), 17 are public DB plans. Trailing DB plans are foundations ($56.8 billion) and endowments ($32.4 billion), which total $89.2 billion in assets.

Assets are more fragmented in the nonprofit space and there are a significant number of small foundations and endowments where the liquidity and ease of use of ETFs are particularly attractive.

Use Cases Are Expanding

Putting ETFs to work: Institutional asset owners’ most frequent use cases for ETFs include establishing or maintaining exposures, such as transition management, equitizing cash holdings, and making tactical bets within a portfolio.

Across these three use cases, holding periods can range from a few weeks to several years. The most comprehensive users of ETFs are those deploying them as long-term core holdings.

It tends to be relatively more common for smaller institutions that benefit from the fact that ETFs carry no minimum purchasing requirement beyond the price of a single share, although there are power users among larger institutions such as the Municipal Employees’ Retirement System of Michigan ($8.8 billion) and the Healthcare of Ontario Pension Plan Trust Fund ($12.9 billion).

Non-users become users: Of institutional asset owners not currently using ETFs, 16% tell Cerulli they plan to begin using them in the next two years. Pathways for adoption can be found among existing ETF users.

The next frontier: ETF users are optimistic about their future use of ETFs, with nearly half of them planning to increase their use in the next 24 months.

Those pushing the use-case frontier forward are thinking about how ETFs can improve operational efficiency, enhance liquidity, and make it easier to gain exposure to active strategies or areas of the market that were historically difficult to access, such as digital assets, bank loans and emerging markets.

Moreover, those furthest ahead are considering co-manufacturing desired exposures directly with ETF issuers.

Maximizing Partners

Leveraging ETF issuers: Institutional asset owners seek to maximize the value they get from their ETF providers. Quality of investment products is paramount, but there should be a consideration of the ancillary services that can also be leveraged.

Key ancillary services: Strong ETF issuer partners are able to provide educational material, thought leadership, both ETF-specific and general, research and analytics such as pre-trade analytics, insight into the benefits of securities lending, and technology such as risk analytics.

Disclosure

Not a Deposit | Not FDIC Insured | Not Guaranteed by the Bank | May Lose Value | Not Insured by any Federal Government Agency

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All data as of 12/31/25 are sourced from Cerulli Associates and ISS Market Intelligence Simfund unless otherwise stated.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Cerulli Associates conducted a series of 31 executive interviews from 4Q 2025 through 1Q 2026 with investment decision makers at institutional asset owners with at least $1 billion in assets under management. The research also draws from Cerulli’s databases, including its Institutional Asset Owner Survey, U.S. ETF Issuer Survey, and institutional market sizings. Cerulli developed a custom U.S. institutional asset owner ETF market sizing using its proprietary asset owner survey data, 13F filings, S&P Dow Jones Indices, and other sources.

The information on this site does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional/financial consultant before making any investment decisions.

The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

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