As exchange-traded funds become more popular with advisors and their clients, allocations to ETFs in fee-based portfolios are quickly increasing, says a new report from Cerulli Associates released on Wednesday.

Advisors have allocated more to ETFs than ever before, the report shows. Up from 2.8% in 2008, ETFs made up 8.7% of portfolios at the end of the second quarter of 2012 according to findings from the report, The Cerulli Edge – Managed Accounts Edition.

“Within the managed account space, with the representative as portfolio manager or advisor, we really have seen ETFs growing quite rapidly,” Patrick Newcomb, a senior analyst at Cerulli.

The primary factor influencing advisor adoption of ETFs is the increase in advisors “adding value with asset allocation,” said 75% of ETF sponsors, according to the report. Second to that is the lower fees associated with ETFs, said 56% of sponsors.  

The interest in ETFs also has to do with an increasing number of advisors managing fee-based portfolios using active and passive strategies to complement one another and using more third-party managed accounts, according to Newcomb. “There is a significant increase in the use of passive investments, which is helping to fuel the rapid growth of ETFs in managed accounts,” he said.

While the mutual fund category is still the investment vehicle to hold the majority of assets in managed accounts, ETFs have been gaining traction in these portfolios since 2007. Managed account platforms now represent nearly 20% of all ETF assets, up from 7.4% in 2008.

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