Demand for exchange-traded funds is expected to continue growing in 2020 and beyond as financial advisors increasingly shift their allocations away from actively managed mutual funds, according to a new Broadridge Financial Solutions survey.
Seventy-three percent of the 513 advisors polled online for the ETF Outlook 2020 study said they expected their allocations will continue to shift in favor of ETFs this year after 83% of them increased their asset allocations to ETFs over the past two years. Advisors who were polled all had at least $10 million in assets under management and at least 10% of their AUM allocated to ETFs, Broadridge noted.
Broadridge predicted in the report that, in the next few years, “ETFs will likely surpass actively managed mutual funds in advisor asset allocation.” After all, actively managed mutual funds only had a slight lead over ETFs now among those surveyed: 29% vs. 27%, according to the firm.
“Since the early 1990s, ETFs have drastically transformed the asset management industry,” Broadridge wrote in the report. “It’s no secret that investors continue to gravitate to ETFs,” it said, adding: “Low cost combined with tax efficiency is a formidable one-two punch. Plus, the popularity of passive index investing makes ETFs a go-to-option for many retail investors.”
Among advisors who said they were planning to allocate more assets to ETFs, 55% indicated they planned to mainly shift assets away from actively managed equity mutual funds, Broadridge said. In comparison, only 15% said they planned to primarily shift assets away from individual stocks, followed by passive equity index mutual funds (14%), cash and equivalents (9%) and bonds or fixed income mutual funds (5%).
The likelihood of an advisor shifting from actively managed funds to ETFs increases among younger advisors, with 64% of advisors surveyed under the age of 40 saying they planned to make this shift, vs. 55% for those 40 to 54 and 48% for those 55 and older, Broadridge said.
“A younger generation of advisors tend to prefer low-cost ETFs to actively managed mutual funds,” the company wrote. The findings indicated “potential long-term shifts in product preference as older advisors retire and transition their business,” it said.
Thirty-six percent of the advisors surveyed indicated they used ETFs mostly for core positions. However, usage varied by AUM and channel, according to Broadridge.