(Bloomberg News) Stephen Cucchiaro is the type of money manager who makes life difficult for Bill Miller.
The founder and chief investment officer of Windhaven Investment Management doesn't dig through balance sheets to pick stocks, like Legg Mason Inc.'s Miller. He studies markets and industries, then chooses cheap exchange-traded funds to allocate client money across asset classes and investment styles, avoiding mutual funds and their fees.
Cucchiaro, 58, who sold Boston-based Windhaven to San Francisco's Charles Schwab Corp. last year, is part of a growing field of managers who use ETFs to build stand-alone portfolios that are grabbing market share from actively managed mutual funds such as Miller's Legg Mason Capital Management Value Trust. Their models helped ETFs attract two-thirds more net cash than traditional mutual funds in the three years ended Dec. 31.
"ETF asset-allocation products are a permanent share taker from traditional asset managers like ourselves," Miller, 61, wrote in an e-mail response to questions.
Cucchiaro's firm took in $1.3 billion in net new investments this year through April 30, bringing the total to more than $6 billion. Value Trust lost an estimated $218 million to client withdrawals in the period, according to data compiled by Bloomberg.
Research firms are starting to monitor asset allocators, which are hard to track because most don't offer their products as funds registered under the 1940 Investment Company Act, the format mutual-fund companies use to attract clients.
Morningstar Inc., the Chicago-based research firm that has rated mutual funds for more than 20 years, rolled out a database this month tracking managers offering asset-allocation models with more than 50 percent of their money in ETFs. The list includes 49 companies overseeing $7.7 billion in 179 products.
Informa Investment Solutions Inc., in White Plains, New York, which rates the performance of institutional investment strategies, tracks 269 ETF-based asset-allocation products from 88 firms managing $17.6 billion. New York's BlackRock Inc., the largest ETF provider, publishes an annual guide to the field, the latest edition covering 83 firms and $18 billion.
"The growth in this area is undeniable, and it's not a fad," Scott Burns, head of ETF research for Morningstar, said in a telephone interview. "There's a shift going on from seeking outperformance on an individual-company basis to seeking it on a macro basis."
Most firms oversee less than $1 billion, typically pooling money into asset-allocation strategies from separately managed accounts held by high-end clients or financial advisors.