Advisors tilt toward ETFs, growth stocks and investment-grade bonds: Fidelity
The multiyear trend favoring exchange-traded funds over mutual funds is on full display in the latest Trends in Portfolio Construction report from Fidelity Investments.
A preview of the second-quarter report, which will be released later this week, shows the average financial advisor has 26% of his or her model portfolio invested in ETFs, up from 18% two years ago.
Other key trends in the quarterly research, which analyzed 2,100 professionally managed investment portfolios, included more aggressive allocations on the equity side and more conservative fixed-income weightings.
Paul Ma, lead portfolio strategist at Fidelity Institutional, said the growing appeal of ETFs over mutual funds can be attributed to a one-two punch that initially included a growing appetite for passive over active strategies, then was boosted by the increased access to actively managed ETFs, which are now attracting advisors who want active strategies.
“ETF use is getting really high,” Ma said. “The traditional benefits of ETFs being cheaper, more tax-efficient and having daily liquidity have always helped make ETFs more appealing to financial advisors.”
Randy Burns, founder and senior financial planner at Model Wealth, said the transition to ETFs was a no-brainer for his practice.
“We’ve switched almost entirely to ETFs for our recommendations as they trade commission-free at all the major brokerage firms and their intraday trading allows for immediate confirmation that rebalancing is successful,” Burns said.
Seth Mullikin, founder of Lattice Financial, has primarily used ETFs for client portfolios since he started his firm almost three years ago.
“Their main benefits are tax-efficiency and low cost,” he said. “ETFs rarely distribute capital
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