Advisors Tap ETFs for Tactical Asset Allocation

September 11th at 9:29am by John Spence

A large and growing user group of ETFs is fee-based financial advisors who use the financial products as building blocks for client portfolios.

Advisors are using ETFs to underweight or overweight certain sectors and asset classes in an effort to outperform the market or reduce risk.

They are weaving in and out of different assets “in the hopes of delivering market-beating returns with fewer steep falls along the way,” Money Magazine reports. “Nearly 60% of advisers have adopted this so-called tactical asset-allocation strategy.”

ETFs can be traded during the day, while traditional mutual funds are priced once a day at the close.

“There are few things more frustrating than watching the market go down and having to wait till 4 p.m. to know the price of a trade,” advisor Nathan Bachrach told Money Magazine. [ETFs and Financial Advisors]

ETFs are a natural fit for fee-based advisors who charge clients a percentage of assets under management, rather than trading commissions. The model is designed to more closely align the interests of the advisor and the client.

Also, nearly half of advisors are using outside managers to assemble ETF portfolios.

“That outsourcing has brought about a boom in ETF strategy firms, which design and manage model portfolios for advisors to sell,” according to the report. “About 120 are in business today, compared with just 25 in 2008.”

Over the six months through March, Morningstar estimates that managed ETF portfolio assets grew by 34%, to $45 billion, according to the article.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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