To be sure, the overall volume of ETFs still pales in comparison to that of mutual funds. According to statistics from the Investment Company Institute, at year-end 2011, the amount of assets in U.S. ETFs totaled $1.05 trillion, or about one-tenth the $11.6 trillion in mutual funds.
Still, given the growth in ETFs, it’s worth asking: Are they viable investments for corporate portfolios?
At the moment, “it’s hard to get a sense on corporate use of ETFs,” according to McRedmond. That’s because the data submitted to the Securities and Exchange Commission on ETF investors comes via the SEC’s Form 13F. These reports are filed by most institutional investment managers with $100 million or more in assets under management.
When a corporate holder does show up in the 13F as an ETF holder, it generally is in relation to the company’s retirement funds, rather than, say, a treasurer investing the company’s cash balances, McRedmond says. For example, some ETFs are appearing as investment options in 401(k) plans, he adds. “That’s an area where we’re seeing ETFs get a little more traction, in addition to corporate pension fund portfolios.”
That’s not to say companies couldn’t use ETFs in other ways. Thomas Warschauer, an emeritus professor of finance at San Diego State University, has studied ETFs, although primarily as an investment for individuals. However, he identified several instances in which ETFs may make sense in corporate portfolios. One would be when a company is considering an acquisition in another industry; it could buy an industry-related ETF to hedge against value increases during negotiations. Another example: a company is developing a new technology, and the raw materials it needs will impact the price and competitiveness of the final product. However, no futures contracts are available for the materials. To hedge its expenses, the company could invest in an ETF that focuses on the materials.
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