Growth in the exchange traded fund space will continue to expand, spearheaded by wider acceptance among registered investment advisors, says an ETF industry expert.
According to recent Charles Scwhab study on advisors, 85% of RIAs on the Schwab platform use ETFs in client portfolios, Tony Davidow, managing director and ETF portfolio strategist at Guggenheim Investments, writes for Ignites.
“ETFs continue to make inroads relative to mutual funds,” Davidow noted. “U.S. ETF assets exceed $1 trillion, while there is roughly $12 trillion in mutual fund AUM.”
Recently, RIAs have begun to include more fixed-income ETFs as part of their investment repertoire. For instance, the Schwab study found that inflows to fixed-income ETFs increased to 54% in 2011 from 31% in 2010. [Why More Money Managers are Using ETFs]
“In the past, RIAs might have chosen to buy fixed income on their own, or fixed-income mutual funds,” Davidow said. “Now, fixed-income ETFs have become a more generally accepted investment option.”
“With PIMCO having recently launched the Total Return clone ETF, it could be a watershed event for advisors’ adoption of fixed-income ETFs,” Davidow added. “If more popular active bond fund managers supply ETF versions of their funds, then demand for fixed-income ETFs will increase.”
Davidow also believes that as RIAs seek niche or focused areas of the market to invest in, the ETF industry will have to accommodate the new demand.
“RIAs are demanding finer slices of the capital markets and access to unique market segments,” Davidow said. “Not all can be efficiently accessed via an ETF structure, but increased demand will lead to more product innovation in inefficient markets or asset classes.”
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Max Chen contributed to this article.