2024 ETF Insights for Financial Advisors

The use of active ETFs and model portfolios is rising, according to a Brown Brothers Harriman report.

By Rethinking65

The 2024 ETF Investor Survey by Brown Brothers Harriman (BBH) explores the growing use of exchange traded funds, which reached $12.71 trillion in global assets in March.

For the second consecutive year, ETF inflows offset mutual fund outflows, the research noted. BBH surveyed 325 investors, 40% of whom manage more than $1 billion in assets. Nearly one quarter (24%) of those surveyed have more than 50% of their portfolios invested in ETFs.

Key Findings

1. Growing Popularity of ETFs

The survey indicates a continued growth in ETF adoption, with more investors incorporating them into their portfolios. This growth is driven by the desire for cost-effective, diversified investment options.

2. Increased Interest in Thematic ETFs

Thematic ETFs, focusing on specific sectors or trends like technology, clean energy, and ESG (Environmental, Social, Governance) criteria, have seen significant interest. Advisors should consider these products to align with clients’ values and market expectations.

3. Demand for Active ETFs

While passive ETFs remain popular, there’s a notable rise in active ETFs. Investors are looking for actively managed strategies within the ETF structure, seeking alpha generation alongside traditional passive benefits.

4. ESG Considerations

ESG criteria are becoming a significant factor in investment decisions. The survey highlights that investors are increasingly considering ESG factors when selecting ETFs. Advisors should be prepared to discuss ESG integration and offer suitable products.

5. Adoption of Model Portfolios

The use of ETF model portfolios is on the rise. These models offer a structured approach to asset allocation, simplifying the investment process for both advisors and clients. Emphasizing the benefits of model portfolios can help streamline portfolio management.

Implications for Financial Advisors

Stay Informed on ETF Innovations

Keeping abreast of new ETF products and trends is essential. As the market evolves, advisors need to understand the nuances of different ETFs, including their underlying indices, costs, and performance metrics.

Client Education

Educating clients about the benefits and risks of ETFs, including thematic and active ETFs, is crucial. Advisors should provide insights into how these products fit into overall investment strategies and align with clients’ goals.

ESG Integration

Advisors must be equipped to discuss ESG factors and recommend ETFs that meet clients’ ethical and financial objectives. Understanding clients’ values and aligning them with suitable investment options can enhance client satisfaction and loyalty.

Utilize Model Portfolios

Leveraging ETF model portfolios can enhance efficiency in portfolio construction and rebalancing. Advisors should consider incorporating these models to provide clients with diversified, well-structured portfolios.

Personalized Advice

Despite the growth of model portfolios, personalized advice remains critical. Understanding individual client needs, risk tolerance, and investment objectives allows advisors to tailor recommendations effectively.

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