“Some 60% of advisers surveyed said they diversify using the same suite of investment vehicles regardless of market conditions and almost one-third (27%) say today’s market conditions make diversification more difficult with current asset allocation,” according to the survey. The 2017 Trends in Investing Survey also showed that many advisers (47%) are looking for new ways to diversify portfolios, and another 6% expect to soon. “This small allocation might also be why only 8% of advisers are considering adding alternatives into portfolios in the future.” “Most advisers (73%) are allocating no more than 10% of client portfolios to alternative investments,” according to the study. There seems to be little appetite among advisers for alternative investments. “We have not invested in this one, but I think the next wave of ETF options will be new ways to diversify a portfolio or align the investor’s values with their investments,” she said. Plus, another interesting new ETF, she said, is the Aptus Behavioral Momentum ETF (BEMO), which attempts to capture behavioral biases of investors in a rules-based strategy. What’s more, duQuesnay - who is co-portfolio manager of the Women Impact Strategy Investing with a Gender Lens, said she was excited by last year’s largest ETF launch, State Street’s Gender Diversity ETF (SHE).
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Indeed, many traditionally market mutual funds have launched their own series of ETFs, including J.P. “I think the future for ETFs is bright, and that they will continue to grow as an investment vehicle used by advisers,” said duQuesnay. In fact, one in two advisers say they plan to increase their use/recommendation of ETFs over the next 12 months. We also avoid ETFs that invest in illiquid securities such as high-yield bonds, certain municipal bonds, and any private investments.”Īccording to the study, the trend to use ETFs is likely to continue in 2017 and beyond. “These types of products are designed to perform based on daily pricing, which make them inappropriate for long-term investors.
“Leveraged ETFs and those with derivatives underlying are ones we avoid,” she said. Because we are long-term, strategic investors, the intraday liquidity of ETFs is not of great importance to us.”ĮTFs are most appropriate for liquid securities traded in real time, duQuesnay said. “While mutual funds must pay out capital-gains distributions, ETFs are often able to avoid capital gains through the share creation process. The tax efficiency of the ETF structure is the most overlooked benefit,” she said. “We favor ETFs for their tax efficiency and low cost. ThirtyNorth Investments, said duQuesnay, is “agnostic” to whether a mutual fund or ETF will be the appropriate investment in each asset class. “We build portfolios by first determining the proper asset allocation, then by selecting investments to fulfill the allocation decision.” “We are long-term, strategic investors,” said Blair duQuesnay, chief investment officer at ThirtyNorth Investments.
Additionally, ETFs are more available, with trading possible when the market is open, opposed to end-of-day only for mutual funds.”Īnother adviser, meanwhile, says her firm tends to use the investments that best fit a client’s needs - be it a mutual fund or ETF. “While historically the downside to utilizing ETFs was trading costs, the race of larger custodians to zero fees has plummeted costs to $4.95 per trade. “ETFs are a great way to capture sector or asset-class exposure with very little expense,” said Kelly Crane, president and chief investment officer of Napa Valley Wealth Management. Despite that increase use of ETFs, which are largely passive investments, 77% of advisers say they favor a blend of active and passive management investments. What’s driving the increased use of ETFs among advisers? Three things: Lower costs (49%) tax efficiency (23%) and trading flexibility (14%). But advisers’ appetite for private-equity funds has risen from 3% in 2006 to 15% in 2017.Īlso of interest, the survey suggests that advisers will decrease their use of individual stocks, mutual-fund wrap programs, variable annuities, individual bonds and nontraded REITs over the next year. For instance, 85% of advisers use and recommend cash and cash equivalents 80%, non-wrap mutual funds 61%, individual stocks 52% individual bonds and 33% mutual fund wrap programs.īy contrast, a low percentage of advisers surveyed use esoteric investments such as hedge funds (9%) and nontraded REITs (15%). Of course, advisers use/recommend other types of investments too.
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