Filed Under:Life Insurance, Life Planning Strategies

ETF strategists eye tactical asset allocation

“Advisor appetite for tactical allocation” is a “large driver” of growth in the ETF space.
“Advisor appetite for tactical allocation” is a “large driver” of growth in the ETF space.

A preference for tactical asset allocation strategies is the chief factor fueling advisors’ interest in exchange-traded funds, according to a new report.

So reveals Cerulli Associates in an August survey of U.S. monthly product trends. The survey examines changes impacting mutual funds, exchange-traded funds (ETFs), money market funds and new products.

More than eight in ten (82 percent) of the respondents rate “advisor appetite for tactical allocation” as a “large driver” of growth in the ETF space. In contrast, fewer than 60 percent of respondents rate the six other factors examined as a major driver.

Among them:

  • Advisor push to outsource portfolio allocation (58 percent);
  • Advisors appetite for ETF exposure but unwillingness to trade ETFs themselves (46 percent);
  • Low fees relative to other providers (45 percent);
  • Superior performance by ETF strategists (37 percent);
  • Inclusion in home-office controlled portfolios at broker-dealers (24 percent); and
  • Educational efforts by ETF sponsors (23 percent).

By channel, the report adds, fund providers distributed more than a quarter (28 percent) of ETF strategy assets in 2012 through the independent broker-dealer channel. ETF strategy assets also found traction among:

  • Wirehouses (21 percent);
  • Regional broker-dealers (16 percent);
  • Third-party vendors (15 percent);
  • Registered investment advisors (14 percent);
  • Direct channels (2 percent);
  • Bank broker-dealers (2 percent); and
  • Bank trust/private client groups (2 percent)

The survey observes also that more than two-thirds of ETF strategists (68 percent) expect their growth to outpace that of the wider market.

“The ETF strategist space is still very much in the early stages of growth, the report states. “A few large firms, including Innealta Capital and RiverFront Investments Group, are drawing most of the assets and attention from advisors and platforms.”

As of July 2013, the report notes, ETF assets under management stood at 1.5 trillion. This compares with $10.2 trillion for mutual funds.

However, ETF assets in July grew at much faster clip, hitting a 6.6 percent gain for the month. In contrast, mutual fund growth topped out at just 2.6 percent.

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Nichole Morford

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