Exchange-traded products are worthy of consideration for use as a core building block of managed accounts and can provide multiple benefits to managed account providers, according to BetaShares.
Speaking at the Institute of Managed Account Providers (IMAP) event in Sydney last week, Vinnie Wadhera, BetaShares’ director of institutional business and national accounts, discussed the multiple applications of exchange traded funds for managed accounts.
“We are seeing three methods of exchange traded fund implementation across managed account providers being core exposures, access to specific strategies or asset classes and dynamic asset allocation,” Wadhera said.
For core exposures, ETFs can be used alone to create balanced portfolios or can be blended with active managers. Such blending can serve to reduce portfolio cost and improve liquidity without the adviser needing to dramatically change the investment portfolio.
“There’s often a misconception of having to choose between active managers and exchange traded funds. As an ETF fund manager, we believe there is room for both in providing optimal outcomes for portfolios,” he said.
Another key use of ETFs by managed accounts is as a means of widening choice and offering strategies or asset class exposure to investors which may otherwise be difficult to implement.
“A key advantage of ETPs is their ability to give investors simple to access, low-cost exposure to asset classes or strategies in a single trade. For example, we’ve seen advisers adopt exchange traded products which seek to provide enhanced equity yield performance or portfolio hedging exposure, which would be difficult to obtain via other means. We’ve also seen interest in specific asset classes such as currency and commodities, for the same reason,” Wadhera said.
Perhaps one of the most effective ways to use ETFs in managed accounts is to use the flexibility of the exchange traded fund structure to implement dynamic asset allocation strategies, Wadhera said.
“We believe ETFs offer tremendous flexibility as they are traded on exchange and can be purchased or sold during the day like a share. This offers managed accounts flexibility to tailor portfolios dynamically, tilting to investment views as required,” he said.