ETF managed portfolios — investment strategies that typically have more than half of portfolio assets invested in exchange-traded funds — are one of the most rapidly growing segments of the managed account universe.
In the third quarter, these strategies’ assets totaled some $111 billion, up 3.7% from the second quarter, according to a report last week from Morningstar, which currently tracks 1,091 strategies from 179 firms.
Professional money managers are packaging portfolios of ETFs into investment strategies to meet broad investor and advisor demand, according to the report.
Morningstar said organic growth in the managed portfolio space appeared to have stalled during the third quarter, as nearly all of the $4 billion quarter-over-quarter increase in assets was driven by the addition of new investment strategies to the firm’s database as of Sept. 30.
However, this was a misperception, it said. In fact, assets overseen by the 25 largest firms increased by $4.8 billion during the third quarter. The removal of several large strategies from the database accounted for the apparent slowdown.
BlackRock enjoyed the biggest quarter-over-quarter growth, as assets in its strategies increased by some $1.3 billion.
Five of the 20 strategies with the biggest quarter-over-quarter asset increases were stock/bond strategic asset-allocation portfolios.
Vanguard’s ETF managed portfolios retained their pre-eminent position with a combined $9.1 billion in assets.
According to the report, global all-asset strategies, about 37% of all assets in ETF managed portfolios, held their ground relative to their blended benchmark in the third quarter. However, this group’s median strategy still lagged its benchmark on a trailing one-year basis at the end of September.
U.S. and global equity strategies also fell short of their benchmarks. The median strategy in the U.S. equity group has lagged the Morningstar U.S. Market Index in the trailing one-, three-, five- and 10-year periods.
The median strategy’s shortfall was more than three percentage points on an annualized basis during the trailing one-, three-, and five-year periods. Managers in this group are struggling to keep pace with a U.S. stock market that has a full head of steam, the report noted.
Strategies in the global equity group have fared much better during the trailing three-, five-, and 10-year periods, according to Morningstar. However, the median strategy fell more than three points short of its benchmark during the year through September.
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