Perhaps lost in the bewildering proliferation of exchange-traded products is just how quickly advisors have adopted ETFs.
This year, advisors were more than twice as likely to build portfolios composed entirely of ETFs as they were in 2013, according to the 2016 ETF Investor Survey by Brown Brothers Harriman and ETF.com.
In 2016, 15 percent of advisors surveyed by New York-based Brown Brothers Harriman invested 91 to 100 percent of their AUM in ETFs. In 2013, just 6 percent of respondents said the same.
More than one-third of the survey’s respondents, 35 percent, used at least 11 ETFs in their portfolios in 2016, with another 34 percent using between six and 10 ETFs. Despite their “exchange-traded” characteristics, most advisors aren’t actively trading ETFs: 90 percent of the respondents reported making five or fewer trades per month within client accounts.
Asked to rate the strongest, highest-quality ETF brands, the respondents placed BlackRock’s iShares first, followed by Vanguard second and State Street Global Advisors third. WisdomTree, Invesco PowerShares and Charles Schwab round out the top seven, respectively.
When asked to rate the most important traits to consider when selecting an ETF, the respondents placed an ETF’s exact exposure at the top, followed by expense ratio and historical performance. Trading spreads and tax efficiency placed very low in importance to the respondents, which Brown Brothers Harriman argues is sign that many respondents are employing a buy-and-hold strategy with their ETF allocations.
Respondents indicated that the growth in smart beta ETFs will likely continue -- almost all of the respondents, 97 percent, said that they plan to maintain or add to their smart beta allocations in 2017. Yet for more than half of the respondents, 54 percent, smart beta accounts for less than 5 percent of their AUM.
Continuing the trend from recent years, the most popular smart beta strategies among the respondents were minimum volatility, quality and equal weighting, according to BBH, while active management, fundamental weighting, liquid alternatives and currency-hedged exposures have all experienced sharp declines in popularity over the past year.
Market participants are becoming more conscientious ETF users, more than two-thirds said that liquidity is an important concern for fixed income ETFs.
A similar number said that they would consider ETFs that engage in securities lending -- Vanguard, Schwab and other firms have been able to lower the expense ratios of many ETFs by lending securities to the options market.