Financial advisers plan to scale back clients’ mutual fund holdings, while expanding their exchange-traded fund investments,
They plan to trim clients’ exposure to mutual funds from 30% to 27% in 2001. In 2007, the average exposure was 35%. ETFs will go from comprising an average of 8% of portfolios to 14% by 2011, up substantially from the 5% they constituted in 2007.
In addition, variable annuities will make up 10% of clients’ portfolios by 2011, up from 7% in 2007. Cash and cash-equivalent instruments now comprises 8% of portfolios.
What’s driving the interest in ETFs is not only their lower fees but their “transparency,” Tony Ferreira, a managing director at Cogent, told The Wall Street Journal. That’s because money market funds and other funds thought to be safe were found to hold subprime investments in the wake of the financial crisis, he said.
Christy White, a principal director at Cogent, said the move away from actively managed funds to ETFs and index funds is “an industrywide problem” for fund companies.
