Institutional investors are leaving money on the table by using familiar investment vehicles like bonds without first looking to see if they could obtain the same exposure efficiently with another product like an exchange-traded fund (ETF) or a future, a study from Greenwich Associates contends.

The study finds 95% of money managers use a manual process for instrument selection and two-thirds have no way to systematically compare instrument selection choices intra-day. Only 15% of buy-side firms have the ability to compare investment instruments intra-day.

Almost half the U.S. and European institutional investors participating in the study do not include choice of instrument as part of best execution reviews.

“Portfolio managers and their trading desks primarily choose instruments based solely on personal experience rather than through an analytical process,” says Kevin McPartland, head Greenwich Associates Market Structure and Technology Research and author of the research report. “Meanwhile, brokers rarely suggest a better instrument to trade, and usually just work to execute the order they were given,” he adds.

While the knowledge of an experienced portfolio manager should not be undervalued, the report concludes that a move toward more systematic instrument selection would ultimately enhance fund returns by capturing alpha invisible to the naked eye.

“There’s a huge opportunity for companies able to take advantage of the flood of new market data to produce real-time tools for instrument scenario analysis that allow investors to optimize product selection,” says McPartland.