Institutional Investors Rapidly Expand Use of ETFs

Why It Matters

The rapid institutional adoption signals ETFs are moving from niche to mainstream, reshaping portfolio construction, fee dynamics, and prompting asset managers to accelerate product innovation.

Key Takeaways

• Institutional ETF holdings reached $337 B in 2025, up 14.4% CAGR.
• Half of users plan to raise ETF allocations in next 24 months.
• 16% of non‑users will adopt ETFs within two years.
• Liquidity, efficiency, and lower fees drive core portfolio adoption.
• Active and niche ETFs (fixed‑income, crypto) gaining institutional interest.

Pulse Analysis

The Cerulli‑Invesco study underscores a structural shift in how large asset owners allocate capital. While traditional mutual funds and separate accounts once dominated, ETFs now command a $337 billion presence, expanding at a 14.4% compound annual growth rate—nearly three times the pace of the broader institutional market. This acceleration reflects a growing appetite for the transparency, intraday pricing, and cost efficiency that ETFs provide, especially as investors seek to meet liquidity demands and streamline operational workflows.

For asset managers, the data spells both opportunity and urgency. The surge in core and tactical ETF usage is prompting issuers to broaden their offerings beyond index‑tracking products, with active fixed‑income, ESG, and niche strategies such as cryptocurrency or emerging‑market loans gaining traction. Partnerships between institutional owners and ETF sponsors are becoming more common, allowing bespoke products that address specific liability or concentration concerns. Consequently, fee compression is intensifying, pushing managers to demonstrate value through innovative exposure, tighter tracking error, and enhanced service models.

Looking ahead, the momentum is likely to persist as half of current institutional ETF users intend to increase allocations and a notable 16% of non‑users plan to enter the space within two years. This trajectory will deepen ETFs’ role in core portfolio construction, influence benchmark composition, and potentially reshape regulatory scrutiny around liquidity and disclosure. Stakeholders—consultants, custodians, and asset owners—should monitor product evolution, assess cost‑benefit trade‑offs, and consider co‑creation models to stay competitive in an increasingly ETF‑centric landscape.