iShares forecasts growing demand for ETF managed portfolios

May 24th, 2012 | By | Category: ETF and Index News

The success of ETF managed portfolios is emerging as a major theme in the US, as a new breed of investment advisers specialising in providing outsourced ETF portfolio management solutions win an ever larger share of financial-adviser-directed assets.

That’s one of the key findings of new research released by iShares, focused on the emergence of ‘ETF Investment Strategists’, a term iShares uses to refer to registered investment advisers utilising ETFs at the core of an outsourced investment solutions business.

Demand for ETF managed portfolios grows

iShares projects that the US ETF managed portfolio sector could reach $120 billion in ETF assets by 2015.

These advisers and managers utilise ETFs in their practice at virtually every stage in the investment process, from building complete asset allocation models to executing tactical strategies.

“More and more, we are seeing advisers striking partnerships with ETF Investment Strategists and, as a key result, successfully offering to their clients institutional-quality portfolios and product innovation that once were too expensive and impractical for retail investors to own,” said Sue Thompson, Head of iShares Registered Investment Adviser/Asset Management Group at BlackRock.

“The movement toward specialised ETF investment management represents a true sea change for the ETF market, as advisers increasingly recognise that ETF Investment Strategists can help decrease time spent on portfolio issues, create more time for building client relationships, and yield distinctive advisory value via their delivery of model ETF portfolios,” Thompson added.

Katharine Earhart, Head of iShares Connect Program, at BlackRock, said “It’s clear that, within the universe of managers who are focusing on outsourcing as a business opportunity, use of ETFs specifically as a portfolio tool can deliver a clear edge. These managers have initially chosen ETFs for their cost efficiencies and ease of access into multiple asset classes. Over time, they are finding that ETFs can offer a dramatic differentiator compared with managers that remain highly dependent on other, less flexible approaches.”

Currently, iShares tracks more than 200 ETF managed portfolio strategies in the US from more than 100 managers representing $46 billion in assets. As this trend gains momentum, iShares projects that the sector could reach $120 billion in ETF assets by 2015.

The market in the UK for ETF managed portfolios is considerably less developed. However, a nascent industry is forming. Early adopters include, for example, SCM Private, a private wealth management firm co-founded by former New Star chief investment officer Alan Miller, which recently launched the UK’s first ETF of ETFs, the DB X-trackers SCM Multi Asset ETF; Marlborough Fund Managers, an established fund management boutique, which runs two funds of ETFs, the Marlborough ETF Global Growth Fund and the Marlborough ETF Commodity Fund; Worldtrack, a dedicated ETF portfolio management specialist; and Evercore Pan-Asset, specialists in model ETF portfolios and asset allocation.

In addition, while UK advisers are already increasingly alert to the benefits of ETFs and other low-cost investment products (as testified by the strong turnout for Vanguard’s recent Investment Symposium, which coincided with the firm’s UK ETF launch), the eventual implementation of RDR and the subsequent adoption of fee-based advisory models are expected to further sharpen the focus on fund costs and help engender a shift towards ETFs and similar such products. Ultimately, this could stimulate the development of US-style ETF managed portfolio products in the UK marketplace.

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