Institutional investors are expected to increase their use of exchange-traded funds and institutional demand for fixed income ETFs are expected to rise, according to new findings from iShares.

Specifically, iShares found that among global asset managers, the usage of ETFs in their portfolios according to self-reported regulatory filings grew from $105 billion in Q3 2011 to $125 billion in Q3 2012. “We also see growth for advisors who provide expertise about ETF portfolio construction and trading to other advisors seeking outsourced model portfolios,” according to the firm.

As well, iShares predicts that increased volatility and decreased liquidity in the underlying bond market -- may drive more institutions to use fixed income ETFs. “In 2012, fixed income ETFs set a new annual flows record of $70 billion, attracting 27% of all global ETF inflows."

"In 2013, we believe institutions will continue to use developed market fixed income ETFs for passive core allocation, tactical strategies, transitions and risk management. Institutions attracted to the emerging world’s improving fiscal, government and economic conditions may also seek access through emerging market ETFs,” according to the firm.

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