Like ’90s fashion and matcha lattes, ETFs are in vogue. Even institutional investors think so.
Public and corporate defined benefit plans, endowments, hospital systems and other institutional asset owners in the US and Canada have nearly doubled their usage of exchange-traded funds over the past five years, according to a recent report from Cerulli Associates and Invesco. Holdings grew at a 14.4% five‑year compound annual growth rate between 2020 and 2025, nearly triple the 5% rate of the broader US institutional market.
ETFs have surged in inflows recently, with 2025 serving as a record year for launches, inflows and AUM in the US. Citigroup analysts estimated that the market could roughly double to $25 trillion by 2030. Wall Street pros are likely to help: Around half of institutional ETF users said they expect to increase their ETF allocations over the next two years, and 16% of non-users are planning to start investing in ETFs over the same time period, according to Cerulli’s report.
“Asset owners are continuing to evolve their use of ETFs” as more funds become available and more investment teams become confident and comfortable with the wrapper, said Brendan Powers, co-head of Cerulli’s product development and institutional practices.
Growing Use Cases
Active ETFs are one area that will continue to propel institutional adoption, Powers said. While today’s use cases are primarily focused on index-tracking strategies, Cerulli found that there’s greater interest in using active ETFs, including for fixed income and hard-to-reach markets such as emerging markets and crypto.
But ETFs are also increasingly being used as a tool for operational efficiency and capacity. For smaller asset owners who may have a lean team (think a chief investment officer and perhaps an analyst or two), a simple tool like an ETF that potentially invests in a fairly straightforward index strategy is attractive, Powers said. And for bigger firms managing strategies in house, buying and selling individual equities is onerous. ETFs make it easier.
It’s not just an American trend:
- Around the world, there are many innovative ways that institutions are using ETFs, said Deborah Fuhr, founder of ETF research firm ETFGI.
- She pointed to the Colombian Ministry of Finance partnering with Global X ETFs in 2024 to launch Colombia’s first fixed income ETF. In Japan, she adds, ETFs have been used for the central bank’s quantitative easing.
Pensions Lead: As of the end of last year, public defined benefit plans in the US and Canada invested roughly $133.7 billion in US ETFs, and 17 of the top 25 institutional asset owners by AUM are public defined benefit plans. Foundations and endowments follow, with $89.2 billion in the assets collectively.