ETFs and the future of investment management

Industry observers Dave Nadig and Matt Hougan predict that by 2030, the U.S. ETF market will hit US$25 trillion in assets under management — a more than 500% increase from today’s US$4.4 trillion.

That prediction may seem audacious. But Nadig, chief investment officer and director of research at ETF Trends, and Hougan, global head of research for Bitwise Asset Management, pointed out at Inside ETFs in Florida this week that US$2.6 trillion has flowed into U.S. ETFs over the last decade — the equivalent of a billion dollars every day for the last 10 years. Meanwhile, US$186 billion flowed out of mutual funds.

With investing costs at or near zero for many American ETFs, Nadig declared investment management “solved” and said advisors should reallocate their time to higher-value activities.

Hougan presented research from ETF.com showing that U.S. financial advisors spend an average of seven hours per week reading investing news and performing research.

“Investing shouldn’t be occupying seven hours per week,” Hougan said. Instead, advisors should be behaviour coaches.

Nadig cited research from Tulip and Natixis Global that found 83% of financial advisors believe behavioural coaching is important, but just 6% of clients agree. However, research from DALBAR Inc. has found that the “behaviour gap” — lack of investor discipline — leads to a -4.3% difference in annual returns.

Beyond behavioural coaching, advisors could be adding value in plenty of areas, Hougan said: career advice, salary negotiations, tax planning, pension timing, insurance, bill payments, retirement income, whether to lease or buy property, education planning and more.

Hougan encouraged advisors to reduce investment management costs where possible and move away from a transactional approach. “Invest in the difficult work of transitioning,” he said, “and as we enter the 2020s, rethink the core of what your business is and the service you’re providing to clients.”

Hot new ETFs

Conference organizers asked nine ETF pundits to pick their favourite funds from the last year.

Daniel Straus of National Bank Financial Markets picked NERD, a video gaming and esports ETF from Roundhill Investments that trades on the New York Stock Exchange. He called it “recession-proof” and noted that it is the purest-play esports ETF available.

The ETF that garnered the most applause, however, was ProShares S&P Technology Dividend Aristocrats ETF (TDV), chosen by Cinthia Murphy, managing editor of ETF.com. Constituent firms must have grown their dividends for at least seven years. Murphy pointed out that 2019 was an excellent performance year for both tech firms and dividend funds. The fund’s performance since inception is 5.63% according to Morningstar.

Other candidates were:

• SCHJ and SCHI, short-term corporate bond ETFs from Schwab Funds;
• URNM, North Shore Global Uranium Mining ETF;
• SNPE, an S&P 500 environmental, social and governance (ESG) ETF from Xtrackers;
• SUSL, an MSCI U.S. ESG ETF from iShares;
• AVUS, Avantis U.S. Equity ETF;
• JHCS, John Hancock Multifactor Media and Communications ETF; and
• FRDM, Life + Liberty Freedom 100 Emerging Markets Index.

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.