More than USD4 trillion has been invested in Exchange-Traded Funds (ETFs) globally since the first ETF launched in 1993. And according to a new survey by the Financial Planning Association (FPA), Longboard Asset Management, and the Journal of Financial Planning, growth in ETF assets will not slow down for the foreseeable future if the financial advisory community has anything to do about it.
The 2017 Trends in Investing Survey marks the third consecutive year that ETFs are the preferred investment vehicle among advisers, with 88 per cent of financial advisers surveyed currently using or recommending ETFs with their clients—the most popular investment vehicle among 18 options. Since 2006, the survey has shown continued growth in the popularity of ETFs since 2006, when just 40 per cent of survey participants indicated they used or recommended ETFs. This per centage grew to 44 per cent in 2008, to 79 per cent in 2014, to 81 per cent in 2015, to 83 per cent in 2016, and now 88 per cent in 2017.
The 2017 survey, which was fielded online in March/April 2017 and received 302 responses by financial advisers of various backgrounds and business models, also indicated that 50 per cent of advisers plan to increase their use or recommendation of ETFs with clients over the next 12 months. No other investment vehicle showed this level of anticipated increased usage. For example, 20 per cent plan to increase use of mutual funds (non-wrap) and only 19 per cent plan to increase use of individual stocks.
While ETFs continue to dominate among financial advisers, so does the use and recommendation of cash and cash equivalents. For the first time since the first survey was conducted, cash and equivalents (85 per cent) is being used and recommended more than mutual funds (80 per cent).
“While a buoyant stock market has boosted individual investor sentiment, the rising propensity of financial planners to use or recommend cash and cash equivalents suggests a more cautious attitude on the part of professionals,” says Dave Yeske, DBA, CFP®, managing director of Yeske Buie and practitioner editor of the Journal of Financial Planning. “The fact that the bull market in the US is hitting the eight-year mark, against a long run average of less than five, combined with uncertainty overseas, may be causing planners to keep their powder dry, or at least begin considering a more cautious stance.”
For the first time, the survey also examined the issue of diversification, which revealed that financial advisers are cautiously optimistic about its future. Advisers seem to be split on whether or not what they’ve used in the past will help their clients achieve their financial goals in the future with nearly 1 in 4 (27 per cent) of respondents believing diversification is more difficult today than it has been. And although half of financial planning professionals feel at least somewhat confident that a traditional 60/40 stocks and bonds portfolio can produce the returns it has historically, more than 1 in 3 (36 per cent) have doubts that it will.
“A growing number of advisers are wondering if it’s safe to get back in the water with creeping correlation between stocks and bonds,” says Eric Crittenden, Chief Investment Officer of Longboard Asset Management. “But there are ways to get a bigger boat, if you take the time to learn about true diversifiers.”