ETFs Strengthen Grip on Investment Marketplace
By Harry J. Lew
More than $4 trillion have been invested in Exchange-Traded Funds (ETFs) globally since the first ETF launched in 1993. And, according to a new survey by the Financial Planning Association® (FPA®), Longboard Asset Management, and the Journal of Financial Planning, growth in ETF assets is not likely to slow down in the foreseeable future.
The 2017 Trends in Investing Survey marks the third consecutive year that ETFs are the preferred investment vehicle among advisers, with 88 percent of those surveyed currently using or recommending ETFs with their clients—the most popular investment vehicle among 18 options. Since 2006, the survey has shown continued growth in the popularity of ETFs, when just 40 percent of survey participants indicated they used or recommended ETFs. This percentage grew to 44 percent in 2008, 79 percent in 2014, 81 percent in 2015, 83 percent in 2016, and now 88 percent in 2017.
The 2017 survey, which was administered online in March/April 2017 and received 302 responses by financial advisers of various backgrounds and business models, also indicated that 50 percent of advisers plan to increase their use or recommendation of ETFs with clients over the next 12 months. No other investment vehicle showed this level of anticipated increased usage. For example, 20 percent plan to increase use of mutual funds (non-wrap), and only 19 percent plan to increase their use of individual stocks.
While ETFs continue to dominate among financial advisers, so does the recommendation of cash and cash equivalents. For the first time since the survey originated, advisors are recommending these investment vehicles (85 percent) more than mutual funds (80 percent).
Other key findings from the 2017 Trends in Investing Survey:
- Despite some advisers (47 percent) indicating they are looking for new ways to diversify a portfolio, most (73 percent) are allocating no more than 10 percent of client portfolios to alternative investments.
- Advisers have a more “bullish” short-term outlook today than they did in 2016. The majority (52 percent) of advisers are “bullish” for the next six months, compared to just 26 percent of advisers who were asked this same question in April 2016.
- Since 2014, an increasing percentage of respondents have said the type of management that provides the best overall investment performance (taking into account costs associated with each style) is a blend of active and passive, with 77 percent of advisers surveyed indicating so in 2017, compared to 57 percent in 2014.
- Advisers are increasingly re-evaluating their asset allocation strategies due to changes in inflation (40 percent vs. 28 percent in 2016), anticipated changes to income taxes (35 percent vs. 24 percent in 2016), and investment taxes (32 percent vs. 21 percent in 2016).