In the separate accounts space, exchange traded fund managed portfolios are gaining popularity as financial advisors seek a tailored asset-allocation strategy for their clients. While they help provide advisors with another tool in their arsenal, investors should still take a closer look to find out if ETF managed portfolios are the right fit.
ETF managed portfolios are investment strategies that hold more than 50% of assets invested in ETFs. A group of ETF Strategists package portfolios of ETFs into investment strategies to meet a wide range of investor demands, providing stand-alone investment strategies or a one-stop complete offering. Many portfolios can be adjusted to adapt to changing market conditions and most employ a rules-based process based on technical or quantitative factors. [What Are ETF Strategists and ETF Managed Portfolios?]
Investors may use ETF managed portfolios independently or combined with other portfolios and investments to craft an overall allocation that fits their investment horizon.
While these ETF managed portfolios help bring more targeted exposure to clients, some have been concerned about the additional fees for management of the portfolios, writes Adam Zoll for Morningstar.
“Any time another party is involved in managing your investments, that party needs to be paid,” Zoll said. “If you were to own ETF managed portfolios through your financial advisor, not only would you be paying him or her a fee, you’d also be paying a fee for the company that manages the ETFs–plus another fee to the company that manages the portfolio allocation.”
Consequently, the median management fee on ETF managed portfolios at the lowest asset level of less than $1 million is 0.55%, which does not include the advisor’s fee or those charged by the underlying ETFs. Other ETF managed portfolios may cost two or three times that amount, with one multi-sector-bond ETF managed portfolio charges 3%.