A new trend that is emerging with ETFs is the use of the funds as tactical tools. These ETFs are used to gain exposure to areas of the market that are not accessible through mutual funds. For example, Jim Holtzman, an advisor and shareholder with Legend Financial Advisors, uses ETFs to get exposure to coal, gold and agribusiness in more aggressive strategies. [Actively Managed ETFs: The Next Frontier]
Morris Armstrong, owner of Armstrong Financial Strategies, applies a core and satellite approach to client portfolios. In a typical portfolio, he estimates, ETFs are 20% to 30% of client assets, reports Lisanti.
Armstrong’s experience with clients also suggests that most investors prefer to leave the choice of instrument up to the advisor. “I think people don’t really understand the technical differences between a mutual fund and an ETF,” he says. From the client’s perspective, SPY and the Vanguard 500 track the same index. “What’s the difference at the end of the day?”
Tisha Guerrero contributed to this article.