The landscape is changing at a rapid pace for institutional investors. Following many years of growth, uncertainty and disruption have reared into the investment landscape to present new challenges for institutions. Underlined by the broad global reach of 2023’s best-performing ETFs, it’s becoming increasingly clear that only a global outlook can ensure long-term sustainability. 

Morningstar’s analysis of the world’s strongest exchange-traded funds in 2023 shows that the Ireland-domiciled VanEck Crypto and Blockchain Innovators ETF was the year’s best performer with a total annual return of 254.88%. 
 

Weighing in at 246.95% 2023 returns, the Nasdaq-listed Global X Blockchain ETF emerged as a strong performer in the United States, while the Stockholm-based XBT Provider Bitcoin Tracker ETN ranked third with a 161.28% total 2023 return. 

At a time when global economies are struggling with geopolitical tensions, an uneven post-pandemic recovery, historically high inflation, and social unrest, geo-diversification is fast becoming one of the more sustainable avenues for hedge funds to protect their wealth against uncertainty. 
 

Despite their strength in 2023, statistics suggest that institutions lag behind retail investors when it comes to the adoption of exchange-traded funds. 

According to a report compiled by Cerulli Associates, institutional investors own almost $1.3 trillion in ETF assets, representing just 4.2% of the ETF segment’s $31 trillion value in the US. 
 

Instead, 80% of the industry’s ETF assets come from retail, with funds representing a strong introduction to different markets for individual investors. 

"Some of the largest institutional investors prefer active exposures, may be well suited to invest in alternative investments, or use structures that offer greater customization, while the ETF structure is more likely to play second fiddle as a cash/liquidity management tool," explained Daniil Shapiro, director of product development at Cerulli.

However, as uncertainty reigns over the outlook for global markets, we may see more institutions look to ETFs as an avenue for gaining more exposure to emerging markets.

Adapting to the Either Way Outlook

The ‘Either Way’ market outlook is the name given to a market scenario where its direction is contested and could swing either way. 

The term is generally used when investors and traders can’t decide whether the market will trend upwards or downwards, paving the way for a greater degree of indecision. 
 

With a series of macroeconomic pressures impacting economies throughout the Americas, Europe, and Asia, one of the most effective ways that hedge funds and other institutions can navigate the uncertainty is through building diversified exposure to emerging markets through ETFs.

The recent news of the rising Consumer Price Index (CPI) in the US, which confounded expectations to reach 3.2% in February 2024, and its impact on Federal Reserve plans to cut rates in early 2024 is just one example of the pressures impacting markets in the US. Additionally, economies like that of Germany and China are piling on regional pressures for local economies. 

In periods of uncertainty, ETFs make the process of gaining exposure to foreign markets more accessible and simpler. Globally-focused funds can trade on US exchanges but hold shares in foreign companies, paving the way for easy assess to overseas assets. 

Artificial Intelligence Offers Fresh ETF Insights 
 

While gaining exposure to foreign markets could make for a transformative strategy among hedge funds seeking to avoid uncertainty within domestic markets, global ETFs may represent a step into the unknown for many institutional investors. 
 

However, innovations in the field of artificial intelligence could play a pivotal role in identifying and interpreting huge volumes of structured and unstructured market data worldwide can pave the way for spotting new opportunities based on market sentiment, anticipating volatility, and faster adaptations to market volatility. 

In particular, the emergence of generative AI can equip hedge funds to become more adaptive in learning and acting on fresh insights surrounding both emerging and established markets on a global scale. 

While artificial intelligence will still pose risks when it comes to trust, reliability, and compliance, the ability of generative AI tools to use synthetic data as a core component in analyzing incomplete data can provide institutions with a holistic view of emerging market data. 

Adopting a Global Outlook
 

As we continue to grow into 2024, current expectations of a more dovish Federal Reserve monetary policy in the US could see more strength and a push among capital flows into emerging market economies that had previously struggled to attract foreign money. 

This added exposure could see both domestic and export growth combine to deliver outperformance. 
 

Even if the generative AI boom continues to push tech stocks higher on the S&P 500, institutions can identify opportunities in emerging market economies like Taiwan and South Korea due to their relative strength in the semiconductor landscape. 

It’s for this reason that access to a wider array of ETF options on a global scale is valuable, and according to Andrew Bradshaw, Global Head of Prime – Hedge Funds at 26 Degrees Global Markets, more institutions are becoming drawn to brighter liquidity prospects in European markets. 

“UCITS-compliant ETFs are experiencing increased interest among hedge fund managers and institutional investors, driven by their adaptable structures and investor-centric advantages,” Bradshaw explained. “Investors benefit from enhanced liquidity, rigorous risk management, and regulatory approval for cross-border distribution.” 

“This growth reflects a strategic alignment with retail investors' preferences, offering hedge funds an avenue to diversify their product offerings while maintaining transparency and regulatory compliance.”
 

Prosperity in the Age of Volatility

With geopolitics and macroeconomic concerns set to create more market volatility over the short term, it may be time for institutions to give globally focused ETFs the attention they deserve. 
 

Although it can be difficult to anticipate the shape that the global economic recovery will take amid so many confounding factors in play, analytical tools and the emergence of AI solutions can help hedge funds identify opportunities throughout international markets. 
 

The top three ETF performers in 2023 illustrate the level of opportunity institutions can access by adopting a more international outlook, with the right tools and available data, it’s possible to continue facilitating growth in a year that could go either way.