As exchange traded funds grow in popularity among the investment community, the Fidelity platform has revealed some interesting differences between the average individual investor and the average financial advisor when it comes to ETF investment demand.
Matthew Goulet, vice president of sector & ETF investment strategy at Fidelity, pointed out in a call with ETF Trends that on a relative basis, individual investors tend to favor ETFs to access sectors or commodities compared to financial advisor usage. Goulet explained that retail investors are not necessarily more positive on the outlook for these asset categories but rather favor the ETF investment tool itself as a cheap and efficient way to access these markets.
For instance, when it comes to commodities, index-based ETFs provide exposure to commodity price movements through direct bullion exposure or indirectly through futures options. Before the advent of commodity-related ETFs, mom and pop investors would have to open a separate commodities account to diversify into this asset class.
Meanwhile, independent financial advisors or registered investment advisors show a greater preference for ETFs to access the fixed-income space compared to individual investors, Goulet said. Individual investors, on the other hand, have not been actively replacing their individual debt securities for broad bond ETF options yet.
Looking more broadly at overall investment demand, the Fidelity investor platform has revealed ETF activity growth for both advisors and retail clients. According to Fidelity data, the average number of ETFs held by Fidelity retail ETF investors increased by 45% since 2012. Advisor and broker/dealer ETF assets on the platform have grown by 95% since 2014 to $186 billion as of June 2017 from $95 billion in June 2014.
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When you combine positions held by financial advisors and individual investors on the Fidelity platform, total ETF assets under administration are quickly gaining pace, with Fidelity’s platform now representing 11% of total U.S. ETF assets as of June 2017 with the majority of those assets sitting on Fidelity’s advisor platform.
ETF assets under administration are also quickly gaining pace, with Fidelity experiencing its largest AUA growth this year of 11% as of June 2017 as most of those ETF assets come from their advisor platform.
If the pace continues, Fidelity could surpass key competitors in ETF assets under administration in the coming years.
The growth is also being fueled by increased demand for ETF-related research materials as more become familiarized with the relatively new investment vehicle.
“We have seen a tremendous growth on our ETF landing page on Fidelity.com over the last year,” Goulet said. “It is encouraging and points to the concerted effort Fidelity has made over the years to provide ETF research and education online. Just this year, Fidelity has updated and enhanced its retail ETF screener to include thematic screens: commission free, ESG, smart beta, market cap, etc. and we’ll continue building out that section of the website.”
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