Advisers can’t seem to get enough of exchange-traded-fund managed portfolios.
The amount of money in investment portfolios that have invested at least half of their assets in ETFs has risen by nearly 50% since June 2012, making the sector one of the fastest-growing managed-account strategies.
According to a new report by Morningstar Inc., the amount of assets in the 645 ETF strategies the firm tracks now totals $80 billion, an increase of 46% since June 2012 and 18% since the start of the year.
Morningstar cited the growth of the fee-based-investing model as a driver behind the increasing allocations to ETF managed portfolios as advisers look to outsource all or part of a client’s investments to a professionally managed portfolio of low-cost ETFs.
Wirehouses and private banks, in particular, increasingly are looking at the strategies as they shift toward fee-based compensation, Morningstar said.
For example, asset-based fees are expected to make up 70% of wirehouse compensation by 2016, up from 58% last year, according to a recent study by Cogent Research LLC.
However, although managed portfolios are using low-cost ETFs, that doesn’t mean advisers are getting them cheaply, because of the associated management costs. Those typically run around 1%.
With about two-thirds of total assets, global equity strategies are the most popular category of ETF managed portfolios.
The top performing strategy, the Keystone Wealth Advisors’ Global Equity Rotation portfolio, has a five-year annualized return of 33%, according to Morningstar.