Exchange traded fund managed portfolios are a growing segment in the separate accounts space, allowing financial advisors to track customized portfolios to meet client needs. As the space grows, competition is heating up.
For example, LPL Financial may be adding fuel to the fee war. At the LPL Focus 2015 conference, the firm announced that it will cut fees from its Model Wealth Portfolios advisor platform in its latest move in the separate accounts space.
“At LPL, we help advisors grow their practices by providing solutions that we believe create value for investors,” LPL President Dan Arnold, said in a press release. “A great example of this is by eliminating selected fees in our centrally-managed platforms in order to lower the cost of accessing quality financial advice for investors and enable financial advisors to provide their services more cost-effectively.”
Strategists including so-called ETF strategists are growing in popularity at platforms like LPL. The Model Wealth Portfolios utilize LPL Financial Research and portfolio strategists including BlackRock, Cougar Global Investments and Quantitative Advantage. The portfolios track a combination of professionally designed strategies through mutual fund and exchange traded products.
With an aging bull market for equities, the threat of rising rates on fixed income allocations and the increased appetite for alternative investing, ETF Strategists should continue to attract attention, especially when the fees for access continue to improve.
In early 2016, the strategist fee charged will be removed on all the LPL Research models in MWP, or a 15 to 20 basis point cost reduction. Moreover, the firm said the IRA maintenance fee will also be removed.
According to Morningstar data, there are 700 managed ETF portfolio strategies from 151 firms with $86 billion in total asset under management as of March 2015.
As of the end of the first quarter, Cougar Global Investments Limited had 4 strategies with $1.7 billion in AUM and Quantitative Advantage had 11 strategies with $876.6 million in AUM.
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.