Sovereign wealth funds and central banks are increasingly using ETFs as more than short-term trading tools. According to new Invesco research, official institutions are adopting ETFs to improve portfolio resilience, liquidity, and implementation efficiency in a more volatile global environment.
Sovereign wealth funds and central banks have historically relied on direct holdings, segregated mandates, and bespoke portfolios. ETFs were often viewed as tactical instruments. That perception is changing.
Invesco’s research, which surveyed 74 sovereign wealth funds and 35 central banks overseeing around $19 trillion in assets, found that just under 40% of respondents now use ETFs. More importantly, usage is expected to rise. Around 60% of sovereign wealth funds said they intend to increase ETF usage over the next three years, while 48% of central banks plan moderate increases.
Why Institutions Are Using ETFs
The ETF structure itself is increasingly attractive, driven by transparency, liquidity, cost efficiency, and the ability to gain fast exposure across markets and asset classes.
For sovereign funds, ETFs are still widely used for tactical allocation and liquidity management. Around 64% use them mainly for those purposes. But a growing minority is embedding ETFs more deeply into portfolio architecture, with around 39% using them for strategic long-term exposures.
Central banks are using them differently. Around 67% employ ETFs for strategic exposures, especially in asset classes where they may not have internal expertise. That marks a meaningful evolution: ETFs are no longer only about speed. They are becoming tools for institutional portfolio construction.
Thematic and Gold ETFs Gain Relevance
Passive equity and fixed-income ETFs remain the most widely used categories, but thematic ETFs are also gaining traction. Around 30% of sovereign wealth funds use thematic ETFs, compared with only 5% of central banks. Themes such as artificial intelligence, energy security, and energy-transition infrastructure are increasingly viewed as ways to add resilience and long-term growth exposure without building positions stock by stock.
Gold is another area to watch. Central banks have been increasing gold allocations for structural reasons, not just short-term price performance. The World Gold Council’s 2026 Central Bank Gold Reserves Survey found that central banks have added an average of 1,000 tonnes of gold per year over the past four years, roughly double the average pace of the previous decade. In the same survey, 89% of respondents expected global central bank gold reserves to rise over the next 12 months, while a record 45% expected their own institution’s gold reserves to increase.
That matters for the ETF discussion because the gold allocation question is becoming more operational as well as strategic: reserve managers are not only asking whether to hold gold, but also how and where to hold it. With custody risk back in focus after the freezing of Russian central bank assets in 2022, ETFs may offer some institutions a more flexible route to gold exposure, even if physical bars remain the traditional reserve format.
Implications for GCC Investors
ETFs are increasingly part of the core toolkit used by large institutions, not just a convenient wrapper for quick trades.
That has direct implications for regional markets. Listings on Tadawul and ADX spanning Saudi equities, India-focused Shariah strategies, sukuk, gold, and thematic exposures offer a way to access diversified positions without the operational friction of assembling them piece by piece.
Shariah-compliant ETFs stand out in this context. They simplify access to compliant portfolios while maintaining diversification, removing much of the screening and monitoring burden that comes with holding individual securities.
This is becoming more relevant as the Shariah ETF market itself expands. As we highlighted in our recent Shariah ETF guide, 51 Shariah-compliant ETFs and ETPs have launched since 2020, representing around 65% of the current universe by fund count.
The market is still incomplete, especially in sukuk, income, regional equity, and multi-asset strategies, but the direction is clear: Shariah ETFs are moving from a niche product category toward a more serious portfolio-building toolkit for Muslim investors.
If institutional demand continues to grow, the region will likely see more depth in fixed income ETFs, broader multi-asset offerings, and a wider range of Shariah-compliant products.
