Low-cost and efficient exchange traded funds make the investment vehicle a suitable tool for financial advisors seeking out an alternative in the separately managed account space.
More financial advisors are using managed ETF portfolios to capitalize on ETF efficiencies and to manage risks, writes Jeff Montgomery, chief executive of Afam Capital, for InvestmentNews.
According to Morningstar data, there are 700 managed ETF portfolio strategies from 151 firms with $86 billion in total asset undermanagement as of March 2015.
ETF managed portfolios are investment strategies that hold more than 50% of assets invested in ETFs and represent one of the fastest growing segments in the separate accounts space. Specifically, ETF managed portfolios offer three major investment themes: tactical, strategic and hybrid mix. The tactical offerings provide short-term plays to capitalize on investment opportunities that are forming, whereas the strategic play provides long-term allocation across sectors and asset classes. Additionally, the hybrid mix includes a combination of tactical and strategic elements.
The managed ETF portfolios are closely monitored by ETF strategists who actively buy and sell ETFs to maximize returns and minimize risk in the portfolios. The strategists also help advisors navigate the ETF landscape, provide investment analysis and advise on portfolio construction, asset allocation and tax structures.
“These strategists are, in fact, active managers using passive products to maximize returns,” Montgomery said.
The ability to adjust positions within a managed portfolio allows strategists to adapt to changes and opportunities that are not available to traditional mutual fund investors, providing investors broad exposure to areas that a quantitative model signals as an opportunity or markets to avoid, Montgomery added.
Moreover, by outsourcing a portion of the workload to strategists, financial advisors may be left with more time to focus on maintaining client relationships and developing new businesses. In a recent survey, Northern Trust Co. has found that 70% of advisors who outsource investment management reported their decision was well received by clients and allowed for further business growth. Additionally, 80% of advisors surveyed said they did not lose clients because of the decision.
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.