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How Advisors Are Building Portfolios With ETFs

Financial professionals explain how they combine “plain vanilla” funds with products that focus on everything from commodities to currencies

Broad-based U.S. equity index ETFs are the most popular products used by advisors today, according to a recent poll conducted by ThinkAdvisor.com and sponsored by OppenheimerFunds. 

The survey finds that 81% of advisors employ them, while equity-sector indexes are used by 68% of respondents.

ETFs tracking broad fixed income indexes are employed by 64% of advisors polled, while broad-based international index ETFs are relied upon by 57%.

Other product categories used by advisors include leveraged/inverse ETFs (17%), currency ETFs (15%) and ESG/impact investing products (13%).

Non-cap-weighted ETF strategies have gained traction, the most popular being equal weighted (46%), low volatility (44%) and fundamental (42%).

Plus, 49% of advisors say they will use these non-cap-weighted products more in the next year or two.

Mack Courter, principal of Courter Financial LLC in Bellefonte, Pennsylvania, mainly uses cap-weighted “plain vanilla” ETFs for the core holdings of a portfolio, and then adds sector, equal-weighted or fundamental ETFs as “opportunity” holdings, he says.

“I choose the ETFs based on many factors, starting with the asset class I want exposure to, then moving on to the methodology used by the ETFs to get the best fit, and then finally I look at liquidity and expenses,” Courter explains.

John Diak, principal of Oatley & Diak LLC in Parker, Colorado, says his group's approach is somewhat different.

“As we transition from mutual funds and individual stocks to [becoming] an ETF-focused shop, we’re really focused [on] broad-based index funds to create the core for client portfolios,” Diak explains, and the team has begun to add factor-investing, smart beta and low-volatility ETFs to create dividend and value-based holdings.

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