How Do U.S. Institutions Use Equity Derivatives?
Institutional investors in the United States employ equity derivatives for a variety of purposes within their investment portfolios: • Two-thirds of institutions use derivatives as an overlay to their active equity investment processes. • Almost 60% of institutions use derivatives to express directional views on individual stocks, sectors or markets. (This practice is most common among hedge funds, but is used much more rarely among insurance companies and pension funds.) • Almost 45% of institutions use equity derivatives as part of more complex investment strategies. • Only one-third of institutions use equity derivatives as an overlay to passive equity investment strategies. Contributing to the decline in trading activity from 2009 to 2010 was a slight drop in the share of U.S. institutions employing options, futures and swaps in their investment strategies. Options are the derivative tools used most often in U.S. investment strategies, followed jointly by futures and ETFs and, at s
