A new study from Cerulli Associates and Invesco finds that North American institutional asset owners have nearly doubled their exchange-traded fund holdings over the past five years — a transformation that is no longer about experimentation and is increasingly about building the core of a portfolio.
The report, titled Inside Institutional ETF Adoption: How Asset Owners Are Broadening Use Cases, is the first research effort focused exclusively on ETF usage among U.S. and Canadian institutional investors. It surveyed 31 decision makers at organizations with at least $1 billion in assets under management, including public and corporate defined benefit plans, endowments, foundations, insurance general accounts, and health and hospital systems.
The headline finding is striking in its pace: institutional ETF assets reached approximately $337 billion in 2025, reflecting a 14.4% compound annual growth rate over the five-year period from 2020. That growth rate nearly triples the 5% CAGR recorded by the broader U.S. institutional market over the same span.
For much of their history, ETFs occupied a fairly narrow lane within institutional portfolios — useful for cash equitization, transitions, or tactical exposures, but rarely considered a strategic centerpiece. That characterization is now outdated.
According to the Cerulli research, institutional asset owners are today allocating to ETFs both as core portfolio holdings and in operational or tactical roles. The distinction matters: using an ETF to manage cash drag during a manager transition is a very different decision than treating it as a foundational, long-term allocation. Increasingly, institutions are doing both.
The forward-looking numbers reinforce that trajectory. Nearly half of current institutional ETF users expect to increase their allocations over the next 24 months. Among institutions that don't currently use ETFs at all, 16% say they plan to begin doing so within the same window. That combination of deepening usage among converts and new adoption among holdouts suggests the growth rate documented in the study is not a peak.
"Our research clearly shows that institutional investors are no longer experimenting with ETFs," said Garrett Glawe, Head of Asset Owner & Consultant ETF Specialists at Invesco. "Our asset owner clients are using ETFs to gain turnkey exposure to different asset classes and geographies, address concentration concerns in the U.S. equity market, and build public proxies for private markets."
What's Driving the Shift
The study identifies several forces behind the acceleration. Liquidity ranks near the top — institutional investors managing large, complex portfolios increasingly value the ability to enter and exit positions efficiently, particularly in volatile markets. Operational efficiency follows closely, as ETFs reduce the administrative burden associated with separately managed accounts and direct holdings. Lower fees and the ability to deploy capital quickly into a diversified vehicle round out the practical case.
But two factors stand out as particularly interesting for the trajectory of institutional adoption. The first is product expansion. As the ETF universe has grown to encompass previously hard-to-reach strategies — bank loans, emerging markets, cryptocurrency, and actively managed fixed income — institutions now have ETF options for exposures that once required more cumbersome vehicles. The second is track record maturation. Many active ETFs launched in recent years are now approaching the three- and five-year performance histories that institutional due diligence processes typically require before meaningful allocation. As those windows close, the pipeline of eligible products widens considerably.
"As asset managers remain dedicated to developing new ETFs — most notably actively managed strategies and esoteric index exposures — it is important for asset owners to keep a pulse on the pace of innovation and how those new products can be used within portfolios," said Brendan Powers, Director of Product Development Research at Cerulli.
Index-tracking equity ETFs remain the foundation of most institutional ETF allocations — market-cap weighted and equal-weighted core equity strategies are nearly universal entry points. But the research points to active fixed income as the category most likely to drive the next phase of growth.
The logic is straightforward: fixed income has historically been more difficult for passive strategies to replicate efficiently given the fragmented and over-the-counter nature of the bond market. Active managers who can navigate that complexity — and who now have the ETF wrapper available to deliver their strategies — are finding a receptive institutional audience. As their track records lengthen, the allocations are expected to follow.
The research also highlights a more novel development: institutions partnering directly with asset managers to co-develop and seed new ETFs. These arrangements give large asset owners the ability to access custom exposures not available in the existing product market while giving managers a committed anchor investor for product launches. It is a more sophisticated form of institutional ETF engagement than anything that existed five years ago.
Implications for the Wealth Management Industry
The convergence of institutional and retail ETF adoption has meaningful implications for the wealth management ecosystem. As the same vehicles that once defined retail investing become standard tools for pension funds, endowments, and insurance companies, the structural case for ETFs strengthens across the board. Greater institutional participation typically brings deeper liquidity, tighter spreads, and greater price efficiency — benefits that flow to all users of the market.
For advisors working with institutional clients or building model portfolios designed to mirror institutional practice, the research offers a useful benchmark. The institutions surveyed are not using ETFs because they are cheap and convenient substitutes for something better. They are using them because the product category has evolved to the point where, for a growing range of applications, ETFs are the better choice.
The full report, Inside Institutional ETF Adoption: How Asset Owners Are Broadening Use Cases, is available at invesco.com/rethinkETFs.
