Under Flanagan, Invesco purchased PowerShares, the fourth- biggest U.S. ETF provider, in 2006. The parent company manages $9 billion in asset-allocation strategies, mainly for institutional investors, that use ETFs as part of the mix.
Edward C. Bernard , vice chairman of Baltimore-based T. Rowe Price Group Inc., said he doesn't believe asset-allocation products built with ETFs will succeed in the long term.
"To the extent that some managers are trying to replace active security selection with active allocation across sectors, that is another name for market timing," Bernard said in a phone interview. "History suggests that is rarely a durable strategy."
T. Rowe Price, which doesn't offer ETFs, limits asset allocation to its target-date mutual funds. The products shift to a more conservative mix of investments based on how far a client is from retirement, and without regard to any short-term outlook.
Cucchiaro agreed that investors can get hurt if they are chasing returns based on what's been hot or cold, especially if they're doing it day to day.
"We take a much longer-term view," Cucchiaro said. "But an asset allocation that might be perfect today may not be several months down the road. It's important for the manager to respond to a changing world."