Separate accounts based on exchange traded funds, or ETF managed portfolios, are becoming the next big thing as more independent advisors shift away from underperforming mutual funds.
ETF managed portfolios are managed accounts that invest at least 50% of asset into ETFs. With the steady expansion of ETF products available, asset managers now have a wide range of investment options available to choose from, reports Jackie Noblett for the Financial Times. [How ETFs Have Evolved]
“There are enough different types of ETFs out there now to put together a pretty diversified portfolio for clients,” Loren Fox, senior research analyst at Strategic Insight, said in the FT article.
“Morningstar and academic research have shown that asset allocation is as important as security selection in determining portfolio total returns,” according to a recent Morningstar study, reports Conrad de Aenlle for MarketWatch. “A prudently constructed portfolio of ETFs provides wide asset-allocation options and low-cost diversification. ETFs provide transparency, intraday liquidity and portfolio consistency to strategists allocating among various asset classes and subclasses.”
ETFs are transparent investment instruments that may be traded daily on an exchange, similar to stocks. [Active vs. Passive ETFs]
“This tactical ability to quickly change a portfolio profile can be a double-edged sword,” the study said. “On the one hand, the investment managers can nimbly and cheaply reposition a strategy to adjust to an ever more rapidly changing investment landscape. On the other hand, it [can be difficult]to choose the most suitable strategies… and properly frame potential return expectations.”
Nevertheless, ETF managed portfolios have outpaced the average mutual fund in several categories, such as all assets, global balanced and global equities, over the 12 months through last September, according to Morningstar data. [How to Use ETFs in a Trend-Following Strategy]
Form more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.