ETF managed portfolios surge as financial advisors see benefits of outsourcing

Sep 12th, 2012 | By | Category: ETF and Index News

ETF managed portfolios are investment strategies that typically have more than 50% of portfolio assets invested in ETFs. Primarily available as separate accounts, they represent one of the fastest growing segments of the US managed account universe.

Major managers of ETF Managed Portfolios

Source: ETF Managed Portfolios Landscape Report, Morningstar

According to data from Morningstar, which tracks almost 490 ETF managed portfolios from 120 different firms, assets under management in this space have grown 30% in the first six months of this year and 48% since September 2011.

Professional money managers are packaging portfolios of ETFs into investment strategies to meet a wide array of investor demands, and thanks to the continual development of individual ETFs they are providing access to both stand-alone investment strategies and one-stop, complete-solution offerings.

Growth in assets from increased advisor demand is being driven by multiple factors. The fiduciary standard continues to move forward as the baseline philosophy for managing client portfolios and as a result, growth in the fee-based model is tilting portfolios toward lower-cost, broad-based investments for a larger part of client portfolios, with a focus on asset allocation.

In addition, ETF strategists (third-party managers of ETF managed portfolios, such as those listed in the table above) allow advisors to access institutional-type diversification and portfolio management through outsourcing, allowing them to focus on gathering and retaining client assets and managing clients’ overall financial profile.

As detailed in the full report (Morningstar ETF Managed Portfolios Landscape Report), global strategies collectively held 61% of assets. Within that group, all-asset strategies continued to command the lion’s share of assets at 35%. The data also suggest there’s a renewed interest in US equities. Tactical strategies are likely jumping on a rebound in the US stock market.

Through June, equity strategies held $20.6 billion, or 42% of the entire ETF managed portfolio universe, with US equity strategies holding a majority – $12.5 billion – of those assets. And while equity strategies as a whole have grown, the majority of that growth was driven by US equity offerings, which held just $7.6 billion in September 2011.

In the UK, ETF managed portfolios haven’t yet gained the same kind of traction as in the US. However, the forthcoming implementation of the FSA’s Retail Distribution Review (RDR) and the introduction of fee-based advisory models  is expected to drive interest in lower-cost products such as ETFs. This in turn could lead  to more widespread adoption of US-style ETF managed portfolios.

One firm already taking a lead in this space is London-based Evercore Pan-Asset, specialists in asset allocation and investment services to pension funds, charities, IFAs and private wealth. Among Evercore Pan-Asset’s products is a range of seven ETF managed portfolios, branded ‘PanDYNAMIC Model Portfolios’. These model portfolios are available to IFAs on popular wrap platforms including Ascentric, Transact and Novia. Other notable firms offering ETF-focused portfolios include SCM Private, Marlborough Fund Managers and WorldTrack.

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One Comment to “ETF managed portfolios surge as financial advisors see benefits of outsourcing”

  1. As a 30 year veteran of the investment consulting industry, I can say that ETF’s are changing the way investors and advisors allocate portfolios and work together. In 2005 I was converted to passive index based investing, using low cost ETFs. After some 3 years of research, looking back over my “best-of-the-best money managers” and analyzing various approaches to asset allocation … I came to realize that these “top money managers” I had been using over 20+ years were under performing their benchmark indexes equal to their fees. I also realized that to remain competitive as an RIA , in this increasingly competitive industry, it was necessary to outsource the back-office functions of investment management and focus on client relationships.

    It was out of this historical background that iSectors® was born as an RIA in 2007. iSectors developed 21 ETF based asset allocation models and offers them only to advisors on several turn-key asset management platforms. Most recently, iSectors ETF models, are offered on Mid-Atlantic Trust’s platform for turn-key 401(k) investment solutions. It’s the focus on asset allocation and low, low cost (through platform technology, as well as, ETFs) that has allowed iSectors various allocation strategies to achieve so many #1 and #2 rankings in the recent Morningstar ETF Managed Portfolios Landscape Report. I believe the growth in assets moving into ETF based asset allocation models and the outsourcing of back-office services by investment professionals; shows a growing focus on getting back to the basics of asset allocation and keeping fees low. iSectors performance results in Morningstar’s report supports the wisdom of this trend among investment professionals … all to the benefit of the investing public and the institutions that rely on these professionals.

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