Long-term market exposure, tactical portfolio adjustments and income generation are the top three reasons why financial advisers and discretionary wealth managers in the UK are investing in Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs), according to new research.1 Three-quarters (71%) of respondents to the survey cited long-term market exposure as the key ‘reason to use’, followed by tactical portfolio adjustments (62%), income generation (40%) and sector rotation (39%).
The survey, commissioned by Source, one of the largest providers of Exchange Traded Funds (ETFs) in Europe, found that costs and liquidity were the top reasons why advisers and managers use ETP/ ETFs to meet these investment needs as opposed to other investment vehicles. Nearly nine-in-ten (89%) respondents cited costs, followed by ‘vanilla’ passive exposure (83%), liquidity (81%), better transparency (78%) and access to hard-to-reach audiences (72%).
Dominic Clabby, Head of UK IFA at Source, said: “More and more financial advisers and discretionary wealth managers in the UK are using ETPs and ETFs for client portfolios given the lower costs, better liquidity and powerful market exposure they provide. This latest research shows that they are using ETFs for a huge range of reasons, from tactical tilts to long-term exposure, for income and sector rotation – indeed, income generation has also become a major reason to use them. This inherent flexibility and adaptability is fundamental to why ETFs and ETPs continue to rise in popularity among UK investment professionals.”
Regional equities were cited as the most commonly used ETP asset class (77% of respondents), followed by global equities (57%), government bonds (53%), equity sectors (49%) and precious metals (44%).
When deciding which ETP/ ETF providers to use, the three most important factors were given as performance (79%), having the product on their execution platform (66%), and being able to share relevant materials about the product with clients (47%). IFAs also reported that they would be encouraged to invest more in exchange traded products if they had greater access to ETP/ ETF-based model portfolios.
Dominic Clabby added: “Income has become a key theme for advisers and wealth managers, given the low interest rate environment, and a new breed of income-focused smart beta ETPs are offering them strong alternatives over traditional funds. Source recently launched three smart beta income ETFs2, targeting high-dividend-paying stocks that have been screened to favour sustainable income. Many investors have been struggling to generate income in the current environment, and this is precisely why we developed the new FTSE RAFI Equity Income Indices.”