Little surprise—Exchange-Traded Fund (ETF) adoption continues to rise. While it might be a case of the fly on the elephant when compared with total mutual fund assets, the ‘fly’ is now the size of a small donkey, and growing rapidly.
New research from global analytics firm Cerulli Associates finds that use of exchange-traded fund is expected to continue to grow over the next two years—primarily in wirehouses.
“Despite ranking after RIAs in terms of percentage of advisors’ portfolio allocation to ETFs, wirehouse firms hold the largest percentage of ETF assets compared to any other intermediary channel,” Jennifer Muzerall, associate director at Cerulli, said in a statement. “We anticipate advisor allocation to ETFs to increase, on average, another three percent over the next two years.”
“Growth of fee-based advisory platforms has been a big driver of flows into ETFs,” Muzerall explained. “The scale and efficiency these platforms create have brought awareness to many advisors about the fees they are paying for active management.”
Cerulli’s latest report, U.S. Exchange-Traded Fund Markets 2016: Strategies for Broadening Adoption, analyzes asset managers that manufacture and distribute ETFs in the U.S. and firms that offer packaged strategies of ETFs.
The report explores the mechanics behind product development, distribution, and marketing strategies for exchange-traded products. It not only uncovers opportunities, but also highlights some of the challenges facing managers in both the retail and institutional channels. The report emphasizes the growing presence of strategic beta, one of the major trends within the ETF industry.
Despite wirehouses’ increasingly rigorous due diligence process, use of ETFs by wirehouse advisors, whether it be through rep-as-portfolio manager (RPM) or home-office models, will further increase ETF asset growth.
Cerulli data shows that 61 percent of wirehouse advisors use ETFs through the RPM model, but nearly another one-third use ETFs through the firms’ home-office ETF models.