More advisors using ETFs to mitigate risk

Advisors expect to use more ETFs in client portfolios since clients’ aversion to risk remains high, says a new Invesco study of U.S. registered investment advisors.

They believe the funds will make up 24% of portfolio allocations over the next 12 months, and 33% over the next three years. This is as a 10% increase over 2011 survey results.

The main reason? The vast majority of clients (91%) are more interested in minimizing losses than maximizing gains.

“Even as many equity markets show signs of strength, advisors are still indicating risk management is their primary focus,” says Michael Cooke, head of distribution of PowerShares Canada.

He says they’re also considering alternative investments.

Read: Faceoff: Alternative Investments

The survey finds a growing appetite for complex strategies, such as smart-beta ETFs, but also warns broader adoption will require more education on how these strategies can best serve clients.

Read: How to navigating the ETF landscape

It also reveals most advisors are blending active and passive approaches, with less than a quarter using exclusively actively managed funds (24%). Also, only 19% use only ETFs or passive management portfolios.

When using active management, planners are most likely to increase capital over the next 12 months in alternatives (46%), emerging market equities (43%) and U.S. large-cap funds (40%).

Read: Consider U.S. large caps and ETFs evolve into active investments

In related news, a plethora of short-term ETFs are now being created as replacements for money market funds, reports Financial Times. It says their “emergence coincides with a heavy gloom gripping the money fund industry.”

For example, Charles Schwab is launching an actively managed short-term bond fund that aims to provide the same capital preservation and daily liquidity clients used to get from money market funds. That is, before low interest rates started to eat into returns.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.