Domestic institutional investors are the second most likely globally, at 78 percent, to include ETFs in their firm’s portfolio “extensively” or “often,” according to new data from State Street Global Advisors (SSGA).

Australia trails only Japan (82 percent) but leads the Netherlands (71 percent), Switzerland (67 percent), Singapore (66 percent) and the United Kingdom (64 percent).

US investors are the least likely to use ETFs in their portfolios, although the majority (61 percent) still do so widely or often.

SSGA Chief Business Officer Anna Paglia highlighted the growing confidence in ETFs as a core component of diversified portfolios among institutional and individual investors.

"The rapid growth and lower cost of ETFs since their introduction more than 30 years ago has made it easier for people from all walks of life to become investors," Palia said.

"With so many ETFs on the market, it's understandable how difficult it can be for investors to choose funds that meet their goals and objectives."

As such, SSGA Australia's head of investments Jonathan Shedd said the appeal of ETFs varied widely around the world.

Namely, Australian institutional investors prioritize performance and reputation when choosing between ETFs that offer the same or similar exposure, while price is key for Swiss, Dutch and Japanese investors.

Meanwhile, investors from the US, UK, Sweden and Singapore value liquidity the most.

"Globally, institutions tend to maintain their bond and cash allocations, while they are divided on whether to increase or maintain current allocations to stocks and alternative investments," Shedd said.

"For this reason, 80% of institutions are likely to consider actively managed ETFs in 2024, while only 4% have ruled them out."

The latest SSGA data also examines each country's outlook for the domestic, US and global economy.

Shedd highlighted how ongoing geopolitical uncertainty, along with rising tensions between the US and China in the South China Sea, are impacting individual and institutional investors in different, albeit significant, ways.

"Nearly two-thirds of individual Australian investors were worried about geopolitical tensions sweeping the world, compared to just one-third of institutional investors," he said.

"The relative comfort institutional investors may have with global volatility may explain why 50 per cent of Australian institutions are bullish on the domestic economy and international outlook."

Overall, 58 percent of local institutional investors are optimistic about the local economy, falling to 56 percent for the global outlook and just 52 percent for the U.S. economy.