Exchange traded funds (ETFs) may have seen a swift rise in the investing world, but hidebound advisors are loath to add passive ETF products to their client portfolios.
According to new research from Cerulli Associates, ETFs are not poised to steal market share in the advisor channel, writes Hannah Glover for Ignites. Cerulli found that around half of advisors surveyed used ETFs; however, ETFs were only about 5% of their client portfolios.
A survey titled “Exchange Traded Funds: Threat or Threatened?” with more than 400 advisors reveals that 45% of participants prefer using actively managed funds in client portfolios instead of passive ETF products and 21.7% are reluctant to reallocate existing client portfolios.
Since 2005, overall assets in ETFs jumped from $300.8 billion to $693.4 billion as of September, and ETF products increased to around 700 products from 204. But observers argue that this is only a small figure compared to the $10.8 trillion in total assets found in mutual funds.
Still, Lisa Cohen, CEO of Momentum Partners, believes that “really good advisors should be able to prove value by using both [ETF and traditional fund products].” ETFs are not simply alternatives to mutual funds, rather they enhance investment strategies by providing access to hard-to-reach areas like commodities, international and other niche markets.
The results of this study don’t jibe with past ones, which have revealed that advisors do plan to use ETFs more in coming years. A study this year by Cogent Research with 1,500 respondents showed that many advisors expect to reduce their clients’ holdings of mutual funds to 27% by 2011, down from 30% today and 35% in 2007. By 2011, they expect ETFs will make up around 14% of their portfolios, or 8% more than now.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.