Displaying items by tag: ETFs

Passive ETFs have lower expense ratios because they don't require a team of portfolio managers to constantly analyze and adjust the mix of underlying investments. Over time, this lower cost can add a meaningful amount to the value of an investor's holdings.

While advisors and investors appreciate lower expense ratios, ETF's benefits extend beyond a simple fee advantage. A closer look reveals another hidden strength: real-time trading.

Unlike traditional mutual funds, which price investments only at day's end, ETFs operate like stocks, providing continuous price transparency and allowing for immediate execution. Gone are the days of uncertainty surrounding redemption values; with ETFs, you see the precise price you'll pay and receive, empowering informed decisions throughout the trading day.

Yet another impactful advantage lies in their liquidity. Popular ETFs often boast trading volumes exceeding even blue-chip stocks. This translates to tight bid-ask spreads, minimizing the price difference between buying and selling, and enabling efficient trade execution.

The combination of low-cost, real-time pricing, and ample liquidity make ETFs powerful tools for financial advisors seeking precision and flexibility within their client's portfolios.

Finsum: Low cost is not the only reason financial advisors should consider ETFs in their client’s portfolios. Consider these other advantages as well.

Schwab conducted a survey among its ETF-investing clients. Among the takeaways is that Millennial investors are quite partial to ETFs, relative to other generations. 37% of their portfolios are allocated to ETFs. 89% said ETFs were their investment vehicle of choice, while 25% of Millennials plan to increase their exposure to ETFs next year. 

Another interesting finding from the survey is that Millennials also have a strong interest in more personalized investment options. 88% said that they are somewhat or very likely to personalize their portfolios. 78% want their investment to align with their personal values. This is much higher than older generations. 

The survey also showed substantial interest in direct indexing among Millennials. This isn’t too surprising considering that 65% of Millennials said it’s extremely important to have more control over investments, 61% want greater ability to customize their investments, and 61% want their investment to be managed to optimize taxes. 

Currently, 87% of Millennials are familiar with direct indexing, an increase from 80% in last year’s survey. Additionally, 53% of Millennials are extremely interested in learning more about direct indexing, while only 34% of Gen X and 22% of Boomers feel the same way. 69% of ETF investors, not investing with direct indexing, said that they are likely to invest in one next year. For Millennials, 80% feel this way.

Finsum: Schwab conducted a survey among its ETF-investing clients. Among the findings, Millennials are partial to the asset class and also have strong interest in direct indexing. 

A sizzling rally in stocks and bonds is leading investors to scoop up ETFs. In November, the iShares 20+ Yr. Treasury Bond ETF (TLT) was up 9.9%, while the Morningstar Global Markets Index, a gauge for global equities, was up 9.2%. 

The major driver of the rally is increased optimism about interest rates given positive news regarding inflation while the economy continues to avoid a recession. This means the biggest gains were found in interest-rate sensitive sectors which have been among the most battered since the Fed embarked on tightening policy early in 2022. 

There were also $110 billion inflows into US ETFs with $77 billion going into equities and $31 billion into fixed income ETFs. This was a 1.6% increase from last month and total ETF flows should easily exceed $500 billion, setting a new record. Fixed income ETFs saw a 2.2% growth rate on a monthly basis and inflows are up 14.3% compared to last year, exceeding equities’ growth rate of 5.6%. 

Active ETFs continue to grow and account for $21 billion of inflows. YTD, total inflows are $116 billion which exceeds $90 billion in 2022. Some areas of growth in the segment are alternative assets and inverse funds. 

Finsum: 2023 is set to be a record year in terms of ETF inflows. Fixed income ETFs and active funds are two of the biggest areas of growth. 

High yield bond ETFs are seeing a surge of inflows as risk appetites reignite. In November, US-listed high yield bond ETFs had $10.8 billion of inflows which surpassed the previous record of $8.6 billion in April of 2020. The inflows in November were enough to offset the $8.7 billion of outflows in the previous 3 months. Globally, there was $127.5 billion of inflows into ETFs which was the highest amount since December 2021.

There was strength across certain parts of the fixed income complex as investment grade corporate bond ETFs saw $10 billion inflows which is the most since January. In contrast, Treasuries saw their lowest levels of inflows since January 2022. There was a sharp decline from the $30.4 billion inflows in October to just $4.3 billion in November, a reflection of the U-turn in sentiment. 

According to Karim Chedid, head of investment strategy for BlackRock’s iShares arm in the Emea region, “Investors have cash to put to work, and if the assessment of the investment environment is better than expected, that dry powder can be put to work.” Another factor is that retail investors have many more low-cost options when it comes to high yield ETFs which seem like an ideal vehicle to take advantage of a ‘soft landing’ scenario which should be bullish for the asset class. 

Finsum: High yield ETFs saw a surge of inflows in November. Here are some of the reasons why the category should benefit from a soft landing. 

Direct indexing has been around for 30 years but was once only accessible and viable for ultra-high net-worth investors. Now, technology and lower transaction costs have made it available for a much wider swath of investors who are able to benefit from direct indexing’s tax-loss harvesting and customization abilities.

Interestingly, the strategy is finding particular favor among millennial investors who are interested in tax optimization and personalization which are not possible through traditional passive investing. Advisors can customize holdings in a way that reflects a client’s values and preferences such as prioritizing ESG criteria or adjusting a portfolio based on a client’s risk profile. Holdings can also be customized to account for a clients’ unique financial situation, which is also not possible through investing in ETFs or mutual funds. 

For advisors, it presents an opportunity to differentiate themselves in a competitive landscape by offering personalized and optimized solutions. Direct indexing is likely to continue growing as it’s becoming increasingly available through many online brokerages and wealth management firms. It’s also consistent with many younger investors’ desired preference to have their personal holdings reflect their values and beliefs. 

Finsum: Direct indexing is growing at a rapid pace, and it’s finding favor with Millennial investors due to its tax optimization and personalization.