ETF strategies gain traction

Money overseen by U.S. investment managers who buy exchange-traded funds instead of individual stocks and bonds rose by 43% during the 12-month period ended Sept. 30, even faster than the growth for ETFs, according to a report from Morningstar Inc. Assets in the 370 ETF-based investment strategies tracked by Morningstar grew to $27 billion in that time frame, the firm said last week. That outpaced the 7.5% increase for ETFs and 0.8% decline for mutual funds, Morningstar said. The products, typically unregistered pools of money sold like funds by small asset managers or investment advisers, reflect a growing preference among investors to pay for managers to allocate holdings across asset classes and investment styles, while avoiding active mutual funds and their fees.

TOTAL ASSETS

“Investment advisers, especially, are moving to fee-based asset allocation strategies,” said Andrew Gogerty, a Morningstar analyst. Although Morningstar doesn't yet track the majority of these strategies, he estimated total assets for the category at as much as $100 billion. Products least constrained by where and what kinds of assets they can purchase grew fastest, Mr. Gogerty said. The report is the first based on a database constructed in the past two years by Morningstar, which has rated mutual funds for more than 20 years. It tracks only those strategies with at least 50% of assets invested in ETFs and relies on data provided voluntarily by the managers on a quarterly basis. The largest provider tracked by Morningstar was Windhaven, a unit of The Charles Schwab Corp. that grew 70% to $7.08 billion. Most firms oversee less than $1 billion. They typically pool money into their strategies from separately managed accounts held by high-end clients or financial advisers, who may combine money from smaller clients.