Wealthy hold few assets in indexed funds

Wealthy investors who use registered investment advisers are only indexing 3.8% of their marketable securities, according to a study. Compared to individual investors who hold 10% to 15% of their assets in index funds, wealthy investors index 1.0% to broad-based U.S. markets and 2.8% to international markets and subsets of the U.S. markets, according to the study by Advisor Perspectives. Seeking performance that exceeds market indices, these high net worth clients opt for a combination of separately managed accounts and actively managed mutual funds. Advisor Perspectives, a Lexington, Mass.-based investor account database, also found that larger accounts (average size of $3.7 million) were more likely to use index funds than smaller accounts (average size of $15,000). Exchange traded funds were another favorite of larger investors, making up 3% of their total assets, compared to their smaller counterparts who had 0.6% of total assets in ETFs. On the other hand, smaller accounts prefer non-indexed ETFs, holding 13.3% of ETF assets in these funds, versus 1.4% for larger accounts. These funds allow smaller accounts to diversify effectively, while larger accounts diversify through individual securities.