Investors who are looking to fill out their core investment portfolio have turned to ETFs as an easy and quick way to instantly diversify into the various market asset classes and categories.
According to “At the Core: Advisor Views on Investment Trends,” a new study of independent advisors conducted by Charles Schwab Investment Management, the average advisor believes 62% of clients’ holdings should be allocated to core investments, and 38% of advisors argued that the core should make up 70% to 100% of holdings.
“An investor’s core holdings are the foundation of their investment portfolio, and independent advisors are focused on finding low-cost, straightforward products for their clients to serve as those crucial building blocks,” Marie Chandoha, chief executive officer of CSIM, said in a note. “Our industry has a reputation for selling products that can be too expensive and complex, but advisors are continuing to advocate for simplicity, transparency and choice in client portfolios.”
As financial advisors fill out their clients’ core portfolio positions, many have turned to ETFs for core exposures. Surveyed advisors revealed that ETFs made up 29% of their core product allocations, followed by 24% mutual funds, 25% individual stocks, 18% individual bonds and 4% other.
Core allocation to ETFs
Looking ahead, 69% of advisors indicated that they will raise their clients’ core allocation to ETFs over the next five years as well. While only 9% of surveyed advisors said they would cut ETF exposure in their core holdings, other products had a less favorable outlook with 16% saying they will reduce mutual fund holdings, 16% revealing a cut in individual stock exposure and 18% reducing individual bond holdings.
When it comes to choosing an index fund, 66% of advisors revealed that total cost was the most important consideration. The high preference for low-cost investments has helped ETFs quickly garner billions of dollars in inflows over recent years.
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Along with cost considerations, 58% said they look to performance history, 49% consider track record and 37% indicated that portfolio construction education and guidance were among the top concerns when comparing two funds that have the same investment objective and price.
About 52% of advisors indicated ETFs are already the primary investment vehicle in client portfolios and 64% said ETFs will be the go-to investment in the future.
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