Howard Present, chief executive officer of F-Squared Investments Inc., in Wellesley, Massachusetts, divides his U.S.- focused asset-allocation products into nine ETFs that track the primary industry segments of the Standard & Poor's 500 Index, plus a short-term Treasury ETF.
About 40 percent of F-Squared's $3 billion in assets come from financial-advisory firms, such as Birmingham, Michigan- based Strategic Asset Advisors and CoreStates Capital Advisors LLC in Newtown, Pennsylvania.
"We never use mutual funds," CoreStates CEO William Spiropoulos said in a telephone interview.
His clients can invest with F-Squared for a fee of 1.25 percent annually, including CoreStates' cut. He said clients get better protection against market declines than simply placing money in an index fund tracking the whole S&P 500, and at a price that's competitive with actively run funds. The average expense ratio on U.S.-registered active mutual funds was 1.22 percent at the end of 2010, according to Morningstar, and advisors typically charge 0.5 percent to 1.5 percent to manage client assets.
F-Squared teamed with Hartford, Connecticut-based Virtus Investment Partners Inc. in 2009 to introduce versions of F- Squared's products that are packaged as mutual funds. The newest, the Virtus Premium AlphaSector Fund, opened in July and gathered $1.69 billion from investors through May 31.
Other managers, including London-based Iveagh Ltd., have long provided an asset-allocation strategy for a small number of institutional or high-net-worth clients and recently moved to widen their customer base with a product geared toward less- affluent individuals.
The firm was founded in 2006, when the family office that managed the fortunes of Ireland's Guinness family took on partners to offer asset management services to outside investors. Arthur Edward Guinness, the 41-year-old great-great- great-great-great-grandson to Arthur Guinness, who founded the eponymous Dublin brewery in 1759, is the 4th Earl of Iveagh.
The 229 million-pound ($376 million) Iveagh Wealth Fund, which can be sold to investors across Europe, has 50 percent to 60 percent of its assets in ETFs, said Chris Wyllie, the fund's co-manager. Opened Sept. 1, 2008, the fund returned 4.1 percent in the year ended June 3.
"ETFs allow us to replicate a core family office portfolio," Wyllie said in an interview. "I'm not sure you could have done that five years ago."
State Street Corp., the second-biggest provider of ETFs, is planning new products for the U.S. market using a mutual-fund structure. The Boston-based firm asked the Securities and Exchange Commission for permission in an April 1 filing to open five asset-allocation funds whose managers would make investments through the company's SPDR ETF family.