Financial advisors now represent the largest owners of U.S.-listed exchange traded funds by assets, passing retail traders as more adopt the easy-to-use and cheap trading tool as a go-to investment vehicle.
According to Citigroup, investment advisors now account for two-fifths of U.S.-listed ETFs by value, the Financial Times reports. In comparison, five years ago, the financial advisor segment made up a little over 35% of the total universe.
Specifically, the bank’s data revealed that wealth managers own 12.7%, with other institutions, like insurers and pension funds, holding a further 8.8%.
Meanwhile, retail investor ownership of US-listed ETFs dipped from 40% to 38.9%.
“The pandemic has accelerated institutional adoption of ETFs. Institutional holdings of US-listed ETFs have outpaced broader asset growth over the past year, pushing retail ownership of ETFs under 40 percent at the end of Q3,” Scott Chronert, global head of ETF research at Citi, told the Financial Times.
Chronert also attributed the U.S. Federal Reserve’s decision to purchase fixed-income ETFs during the height of the coronavirus pandemic selling to help stabilize the debt markets as a watershed moment that could have provided a further tailwind in the ongoing shift in assets among investor groups.
“The Federal Reserve incorporated ETFs as a policy tool. To us, this essentially gave the ETF wrapper a stamp of approval,” he added.
The market breakdown isn’t that surprising, as Deborah Fuhr, founder of consultancy ETFGI, noted that ETFs were largely an investment tool for professional traders when they first hit the markets back in the 1990s. However, she noted that retail investors began to dominate the landscape from the early 2000s with the emergence of Invesco’s Nasdaq 100-tracking QQQ fund and State Street Global Advisors’ SPDR sector vehicles, followed by the first gold ETF in 2004.
The more recent shit may be attributed to prominent institutional players building portfolios with ETFs.
“The big trend continues to be the movement towards [ETFs by] managed accounts,” Chronert said, referring to the portfolios offered by broker-dealers, like Merrill Lynch and Morgan Stanley, financial advisers, and registered investment advisers. “This cohort of investors has become an increasingly important user of ETFs, as they build out model portfolios.”
Chronert attributed the greater adoption of ETFs to factors like the ease of constructing portfolios out of ETFs, low costs, and superior tax efficiency vis-à-vis mutual funds.
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