Advisers using ETFs and mutual funds more

A Schwab Advisor Group study of investment trends among financial advisers shows a growing preference for the ease of packaged portfolios such as exchange-traded funds  and mutual funds, with ETFs gaining ground.dollar pic

The report, “At the Core: Advisor Views on Investment Trends,” was based on a survey conducted in August of 381 independent investment advisers with at least $50 million in assets under management.

Here are that reports key findings: 

A. Core Holdings: 38% of advisers believe core holdings – defined broadly as U.S. and international equities, along with corporate and Treasury bonds – should make up 70% to 100% of portfolio holdings.

B. ETFs edge higher as a core allocation:  Allocations to core holding across client portfolios:

  • ETFs: 29%
  • Individual stocks: 25%
  • Mutual funds: 24%
  • Individual bonds: 18%
  • Other: 4%

C. Increasing Core Holdings:  Portion of advisers who expect increase in core allocations to the following types of investments in the next five years:

  • ETFs: 69%
  • Mutual funds: 53%
  • Individual stocks: 52%
  • Individual bonds: 46%

D. Decreasing core holdings: Portion of advisers who expect decreases in core allocations to the following types of investments in the next five years:

  • ETFs: 9%
  • Mutual funds: 16%
  • Individual stocks: 16%
  • Individual bonds: 18%

E. Active vs Passive Management: Despite the general trend toward passive investing, active management still accounts for 51% of client portfolios.  Other Events impacting core allocations include how advisers will change allocations to core portfolios based on key economic and market events:

  • Tax reform: 54% will increase allocations to core portfolios, while 23% will allocate less.
  • Rising interest rates: 51% will increase allocations to core portfolios, while 25% will allocate less.
  • Trade war escalation: 40% will increase allocations to core portfolios, while 33% will allocate less.

F. The Dominance of ETFs is clear: Client portfolios are currently made up of 52% ETFs, 41% mutual funds, and 7% other investments.  Advisers expect the allocations to move toward 64% ETFs, 30% mutual funds, and 7% other.

50% of advisers would consider allocating clients to all ETFs, and already do this for some clients and 48% of advisers would consider allocating clients to all mutual funds, and already do for some clients.

G. Age preferences of EFTs by age

  • 60% of advisers age 25 to 37 (millennials) already use all-ETF portfolios for some clients.
  • 55% of advisers age 38 to 53 (Gen X) already use all-ETF portfolios for some clients.
  • 43% of advisers age 54 to 72 (boomers) already use all-ETF portfolios for some clients.

EFTs are not for all investors and contain market risks.  In our portfolio management practice, NAMCOA advisors use ETFs in portfolio building but only based on a clients risk tolerance profile.  Investors should read a prospectus fully to understand risks fees,  disclosures and talk to a financial advisor.

For more information, please contact us.

Author: Paul McIntyre

Chief Compliance Officer

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