Invesco: ETFs are gaining popularity in Wtp portfolios

July 2, 2026

_{This interview was originally written in Dutch. This is an English translation.}

Under the Wtp, portfolio management is becoming more dynamic and the need for flexibility is increasing. This calls for instruments that enable pension funds to make adjustments quickly, efficiently and accurately. Do ETFs offer a solution here? According to Jan Willem van Stuijvenberg, an Independent Investment Consultant specialising in Risk, Rates & LDI, and Jolien Brouwer, Senior Client Director for ETFs at Invesco, ETFs are evolving from a tactical tool into a structural building block in portfolio management.

By Harry Geels

What role can ETFs play in a portfolio under the Wtp?

Jan Willem van Stuijvenberg: ‘Under the Wtp, it has become much more important to adjust the portfolio frequently, quickly and accurately. After all, the desired asset allocation – particularly the ratio between the return portfolio and the matching portfolio – changes monthly due to variations in returns, lifecycle effects and cash flows such as premium contributions and benefits. As deviations can lead directly to undesirable effects – such as missed returns for younger members or an unintended redistribution between generations – it is crucial to remain as close as possible to the target allocation. In this context, I expect ETFs to play a more prominent role. They are liquid, tradable intra-day, operationally straightforward and available across a wide range of asset classes. This makes them ideally suited to the recurring monthly rebalancing under the Wtp, particularly in segments where no futures are available, such as European high yield and EMD. Index funds could potentially serve this purpose as well, but they do not offer intra-day trading and require administrative subscription. In the context of rebalancing, index funds primarily offer a solution when no ETFs exist for the segment in question. The disadvantages of futures in this context are roll management and the variation margin. In many cases, therefore, ETFs offer the best combination of flexibility and practicality. This means they fulfil not only a tactical or temporary function, but also a structural role in the management of Wtp portfolios.’

Jolien Brouwer: ‘Our research shows that, in most cases, ETFs are also more attractive – that is to say, cheaper – than comparable futures. What is remarkable is that ETFs originally started outside the Netherlands as stopgap solutions. Furthermore, we are seeing an increasing number of bespoke ETFs being developed for the institutional market, particularly for strategic allocations. They are therefore multifunctional.’

Unfortunately, good investment products or ideas are sometimes sidelined because they are perceived as too difficult to explain.

Can ETFs be a useful tool during the transition phase to the Wtp?

Van Stuijvenberg: ‘For the same reason that ETFs are an excellent tool for making structural adjustments, they can – to a limited extent – also be used to move quickly and efficiently from the FTK allocation towards the Wtp allocation. I also see a role for ETFs in temporary de-risking prior to the transition. Some funds do this to stabilise the funding ratio and thus prevent it from falling below the critical transition funding ratio. As ETFs require funding, their role here will be more limited than in the case of continuous adjustments under the Wtp. Futures, swaps, equity puts and swaptions are more obvious choices. ’

Brouwer: ‘It is important to determine in advance exactly which risks are being considered, for example liquidity risks or the risk of having no exposure to a particular market or risk premium. The specific characteristics of ETFs can then make them an attractive option for use during the transition phase, certainly if futures are not an alternative.’

Why do Dutch institutional investors invest more in index funds than in ETFs, whereas the situation is different internationally?

Brouwer: ‘Historically, the Dutch institutional sector has favoured discretionary mandates. There may also be a perception that ETFs are retail products. We also regularly hear the misconception that ETFs are less suitable for sustainable investing. Furthermore, it is often wrongly claimed that smaller ETFs are less liquid. Finally, it is still often thought that synthetic replication is not safe. These misconceptions can easily be dispelled through education. For example, there is a growing range of sustainable ETFs. We can, in fact, construct an ETF for virtually any sustainable index. The liquidity of an ETF depends on the liquidity of its underlying investments. And synthetic ETFs are now just as safe as physical ones and even offer additional advantages.’

During the GFC, trading in bond ETFs continued, but there was hardly any trading left in the underlying bonds. ETFs provide an extra layer of liquidity for investors.

What else can you tell us about synthetic ETFs?

Brouwer: ‘We are seeing the relative share of synthetic ETFs grow in importance. Because the index return is contractually delivered by a counterparty, tracking is generally more accurate and predictable, with less tracking difference than with physical replication, particularly in less liquid or hard-to-access markets. Furthermore, synthetic structures can be more efficient in terms of costs and tax, for example by limiting dividend leakage for certain exposures. Moreover, through a basket of shares, we always have more than 100 per cent collateral within our own ecosystem – the so-called ‘unfunded swap’ – and we enter into the underlying ‘return swaps’ not with one but with five counterparties. Finally, UCITS regulations are so strict that the prejudices against synthetic ETFs are unfounded. Here too, the challenge lies in education: we must enable institutional investors to properly understand and explain the replication process. It is no coincidence that Invesco’s largest ETF is a synthetic one.’

Van Stuijvenberg: ‘I do think this obsession with “being able to understand and explain everything” in the institutional world has gone a bit too far. After all, a consumer buying a car doesn’t need to fully understand the underlying technology to make a responsible choice. Similarly, a pension fund manager can strike the right balance between costs, returns and risk without having to master the underlying mechanics down to the smallest detail. That is primarily the job of the advisers who enable the manager to make a sound assessment. Unfortunately, good investment products or ideas are sometimes dismissed because they are deemed too difficult to explain.’

Another misconception is that, in times of stress, ETFs may sometimes trade at a price different from that of the underlying investments.

Brouwer: ‘The idea that ETFs “decouple” from their underlying value in times of stress is indeed a persistent but incorrect preconception. We emphasise, in fact, that ETF pricing is supported by so-called Authorised Participants (APs). These are large, specialised market participants – usually banks or market makers – who create and ‘redeem’ ETFs and intervene via arbitrage if an ETF’s price deviates from the value of the underlying portfolio: they buy or sell the underlying investments and exchange them for ETF shares, or vice versa. This mechanism ensures that the ETF price usually returns quickly to its net asset value. During periods of market stress, the ETF price may temporarily deviate from the most recent valuation of the underlying assets, but this does not mean that the ETF is ‘incorrectly’ priced. On the contrary, in times of market turmoil, the ETF often reflects current market conditions more quickly than the underlying securities. Fun fact: during the Great Financial Crisis, trading in bond ETFs continued, but there was hardly any trading in the underlying bonds. ETFs provide an extra layer of liquidity for investors.’

www.invesco.nl

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