The ETF industry has broadened and matured—which means planning with ETFs will become more difficult and challenging.
Addressing the 2017 Inside ETFs conference in Ft. Lauderdale, Fla. on Monday, Inside ETFs CEO Matt Hougan argued that advisors and investors would no longer be satisfied with portfolio allocations focused on minimizing investment costs while offering broad market exposure.
“For the past 10 years, if you were an advisor or an investor, you had this enormous tailwind pushing you along just for using ETFs,” Hougan said. “Now everyone has caught up. ETFs are the No. 1 most recommended product by advisors and being an ETF advisor is no longer enough.”
To continue the ETF industry's impressive growth, advisors will have to think big, said Hougan and ETF.com CEO Dave Nadig in a presentation titled "Timing is Everything."
ETFs have become so common, said Nadig, that they account for 30 percent of the daily trading value on U.S. exchanges, and traditional, active asset managers are launching their own ETFs.
“We’ve seen this unbelievable entry from everybody in the asset management industry,” said Nadig. “They’re here because the active management story hasn’t really been working.”
Nadig said that wealth managers using ETFs are going to have to start thinking like institutional investors and fully embrace smart beta and other more differentiated investing tools.
“The first big smart beta ETFs weren’t targeted at my mom, or at you, but they were targeted at the Arizona state retirement system,” Nadig says. “When you see these smart beta products come to market and instantly get a lot of traction, it’s because they’re addressing an institutional demand.”
Asset managers have added value in the form of factor-weighted strategies as a response to fee compression in the industry, noted Nadig, and in response individual investors and wealth managers are looking more closely at smart beta.
Yet Nadig also noted that net inflows into smart beta products started to trail off in 2016 after strong growth in 2014 and 2015. In the past three years, most of the flows into smart beta products have followed the lowest-cost products from large providers, said Nadig, with the most popular funds generally coming from Vanguard and BlackRock.