With assets flowing to exchange traded products, including exchange traded funds and notes, at a torrid pace, it is not surprising that data indicate financial advisors and retail investors are expected to increase their use of ETFs.
“Nearly three-quarters of financial advisors (72 percent) expect to increase their ETF allocation in the coming three years, with a quarter expecting to significantly increase their allocation to ETFs,” according to a survey by BlackRock (NYSE: BLK) and Fidelity.
BlackRock, the world’s largest asset manager, is the parent company of iShares, the world’s largest ETF issuer. BlackRock serves as the sub-advisor for Fidelity’s 11 sector ETFs, which have over $2.2 billion in combined assets under management. The firms also have an extensive lineup of commission-free ETFs available to Fidelity advisors and retail clients. [Fidelity’s Commission-Free Platform]
Results of the BlackRock/Fidelity survey were released just days after data showing assets under managements across U.S.-listed exchange traded products reached nearly $2.1 trillion last month.
“In February 2015, ETFs/ETPs listed in the United States saw net inflows of US$34.43 Bn. Active ETFs gathered net new assets of US$ 2.02 Bn their highest ever monthly NNA. Equity ETFs/ETPs gathered the largest net inflows with US$18.842 Bn, followed by fixed income ETFs/ETPs with US$11.67 Bn, and commodity ETFs/ETPs saw net inflows of US$1.48 Bn. Year to date the net new asset flows into fixed income and commodity ETFs/ETPs listed in the US are at record levels of US$ 19.15 Bn and US$ 5.59 Bn respectively,” according to London-based ETF research firm ETFGI. [U.S. ETF Assets Reach a Record in February]
There is still room for significant ETF asset growth because, as the BlackRock/Fidelity survey notes, just 32% of individual investors currently own ETFs in their portfolios. The firms said “61 percent of non-owners report they have not invested in ETFs because of a lack of general familiarity with the products,” but added that ETF momentum can continue building as product awareness rises.
BlackRock and Fidelity surveyed 251 advisors with at least $25 million in assets under management and 1,015 individual investors with at least $100,000 in non-retirement account assets. Data indicate 20% of non-ETF owners intend to purchase their first ETF sometime in the next 12 months.
As has been noted in previous studies, ETFs are favored by a younger investing demographic.
“Younger investors (ages 25 to 49) are far more likely to use ETFs in their portfolios. Nearly one-third (30 percent) of younger non-ETF owners plan to purchase ETFs in the next 12 months (versus 18 percent for those over age 50),” according to BlackRock and Fidelity.
Advisors and investors also look at ETFs as long-term holdings, not short-term trades. According to the research, 88 percent of investors think of ETFs as being part of their long-term investing strategies. Seventy-nine percent of advisors using ETFs in client portfolios see them as part of a long-term investing strategy, and 43 percent are using ETFs at the core of their portfolios, said BlackRock and Fidelity.