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Assets in ETF Managed Portfolios Increased 17.6% in Q1: Morningstar

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Assets in ETF managed portfolios increased in the first quarter of 2017.

Morningstar released its latest ETF Managed Portfolios Landscape Report, an update on the industry through the first quarter of 2017.

The report considers “ETF managed portfolios” as investment strategies that typically have more than 50% of portfolio assets invested in exchange-traded funds and report strategy information to Morningstar. Primarily available as separate accounts, these portfolios represent “one of the fastest-growing segments of the managed-account universe,” according to Morningstar.

At the end of March, strategies in Morningstar’s database had collective assets under management and assets under advisement of $99.7 billion. This was a 17.6% rise from the previous quarter. Morningstar currently tracks 950 strategies from 169 firms.

Professional money managers are packaging portfolios of ETFs into investment strategies to meet a wide array of investor and advisor demands, according to the report.

“The fiduciary standard continues to move forward as the baseline philosophy for managing client portfolios, and, as a result, growth in the fee-based model is tilting portfolios toward lower-cost, broad-based investments for a larger part of client portfolios, with a focus on asset allocation,” the report states.

Though organic growth in this space perked up after having stalled in the final quarter of 2016, approximately $8.8 billion of the $14.9 billion quarter-over-quarter growth was attributable to the addition of new strategies to Morningstar’s database, according to the report.

The remainder was driven by the continued momentum being enjoyed by four of the five largest operators in the space. The report finds that Vanguard, RiverFront, State Street and BlackRock added a collective $2.3 billion in assets to strategies that had been included in Morningstar’s database as of Dec. 31, 2016.

Seven of the 20 strategies with the largest quarter-on-quarter increases in assets were vanilla stock/bond strategic asset-allocation portfolios, the report finds.

“This marks a continuation in the shift of investor preferences in this space that was spurred by the implosion of a handful of high-flying tactical strategies just a few years ago,” the report states.

Global strategies account for about 36% of all assets in ETF managed portfolios, and the report finds that the global strategies gained back some ground relative to their blended benchmark in the first quarter.

U.S. equity strategies, however, are getting “left in the dust,” according to the report. The median strategy in the category has lagged the Morningstar U.S. Market Index over the trailing one-, three-, five- and 10-year periods, according to the report. The median strategy’s shortfall was nearly 4 percentage points on an annualized basis over the trailing one-, three- and five-year periods, the report finds.

“Managers in this group are clearly struggling to keep pace with a U.S. stock market that has a full head of steam,” the report states.

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