Institutional investors that began using exchange-traded funds for manager transitions, rebalancing and other tactical applications are increasingly using these products for more strategic purposes, such as gaining long-term exposures to desired asset classes.

According to a study by Greenwich Associates, one third of asset managers and nearly 60% of institutional funds use ETF. This is a significant increase from a year earlier when 25% of asset managers and 50% of institutional funds used ETFs. Fifty-seven percent of institutional ETF users use these products to achieve strategic allocation ranges.

“Many institutions consider strategic applications to include liquidity overlays or longer-term over-weights, perhaps to an asset class or a single country, especially if the security is held for more than 12 months,” said Jennifer Litwin, a senior director at Greenwich.

The annual study, conducted by Greenwich and sponsored by iShares, is based on interviews with 80 institutional investors, including corporate pensions, public pensions, foundations and endowments, and large asset management firms.

According to the study, most are first drawn to ETFs to help with two basic functions: manager transitions and cash equitization/interim beta. Among users of ETFs, 78% of asset managers and 44% of institutional funds use the products for cash equitization/interim beta. Both of those percentages are up meaningfully from 2011. Another 61% of asset managers and 55% of institutional funds in this group use ETFs in manager transitions.

The results of this year’s Greenwich Associates study suggest that, once institutions integrate ETFs into their manager transition or cash equitization processes, they begin seeing additional applications. In 2011, 44% of institutional fund managers that use ETFs used them in their rebalancing processes. In 2012 that share rose to more than half.

As ETFs are used more strategically, institutional investors are holding them for longer periods. In 2012, about half of institutional funds using ETFs reported average holding periods of one year or more, with 36% reporting average ETF holding periods in excess of two years. Last year, only 36% of institutional funds reported average ETF holding periods of a year or longer.

Though funds with less than $5 billion in assets under management are most likely to hold ETFs for longer periods, 43% of funds above the $5 billion mark also report holding ETFs for a year or more.

Nearly 90% of institutional funds and asset managers that employ exchange-traded funds use iShares as a provider, making the company by far the most widely-used provider. Among ETF users, 61% of asset managers and 47% of institutional funds use SPDRs/State Street, and half of asset managers and nearly 40% of institutional funds use Vanguard.