Data & Research December 18, 2012

ETF Usage Depends on Fund Selection

Adviser adoption levels of exchange-traded funds (ETFs) are guideposts to their fund evaluation and selection processes, a survey found.
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“Adviser Insights on ETFs,” released by Kasina, a consulting firm, highlights the preferences and approaches of different groups of advisers. For example, more than a fifth of high­-level advisers—those with assets over $200 million under management—cited thought leadership from fund providers as a key differentiator in the ETF decision making process. In contrast, only a tenth of advisers with assets under management below $80 million cited thought leadership as a key factor in the selection process.

The survey underscores the importance of effective segmentation to ETF providers. Understanding the degree of ETF adoption within advisers’ portfolios can help fund firms to create more effective marketing strategies. In particular, active managers facing ongoing issues with redemptions can determine the best opportunities and funds that these users would consider.

For sales and marketing purposes, it is easy to group ETFs and the advisers that use them into a single category, according to Hari Krishnaswami, director and product manager at Kasina. “The survey makes it clear that distinctly different layers exist within this market,” Krishnaswami said. “To gain market share within these segments will require fund firms to align their strategies with how each of these groups prefers to handle the ETF business component.”

More than 20% of high-­level advisers say that thought leadership from asset managers is an important criterion when selecting between two or more similar ETFs, but only 12% of lower­level advisers considered this important.

Other findings of the survey are:

  • ETFs enjoy broad support and acceptance among advisers;         
  • More than 75% of advisers use ETFs;
  • Among advisers who use ETFs, average allocation in ETFs is nearly 20%;  
  • Nearly 90% of advisers are satisfied with the range of market exposures available through ETFs; and
  • Last year, 53% of ETF users redeemed assets from active mutual funds and put them in ETFs.

More information is at Kasina’s website. The research firm is based in New York. 

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