We're in an ETF boom, and Cogent Research has been tracking the category's substantial growth and how it relates to fundsters. "Advisor Brandscape," the Market Strategies International company's new report, explains how traditional fund managers are positioned to be the next leaders in the ETF's heyday: the rollout of active ETFs.

Cogent, who conducts the survey every year, consulted over 1,700 financial advisors in the U.S, and made some pretty surprising discoveries. For the first time ever, advisors are as likely to invest new dollars in ETFs as they are to invest in mutual funds.

"Last year advisors allocate 27 percent of new dollars in to mutual funds and 19percent to ETFs," says Meredith Rice, senior product director and author of the report. This year the numbers were neck and neck. Price says that advisors allocated 23 percent of new dollars into mutual funds and 22 percent into active ETFs.

"The number of dollars going into ETFs is going up, while monies into mutual funds are creeping down a little bit," says Rice. "That is why we are presuming that for mutual fund managers, it is really an opportunity to get into this growing piece of the pie."

Primed to benefit from launching active ETFS are traditional fund managers, because they are already perceived as trustworthy establishments who have been around the block, and can more or less clone their successful mutual fund models in ETF form.

"Instead of entering a new product category [traditional funds] would have credibility," Rice says, citing Pimco as an example of a fund company that has pulled off both the mutual fund and the active ETF.

See the full press release below. The report is available for download here.

---

Company Press Release

Cogent Research: Traditional Managers Poised to Ride the Next Wave of ETFs

July 22, 2013 09:00 AM Eastern Daylight Time  CAMBRIDGE, Mass.--(BUSINESS WIRE)--Despite declining fund use among advisors, traditional mutual fund managers, particularly large fund complexes, are positioned to play a leading role in the next phase of the ETF revolution, the rollout of active ETFs. This and other findings are included in a report recently released by Cogent Research, a Market Strategies International company. The report, Advisor Brandscape®, is conducted annually and is based on a survey among a nationally representative sample of over 1,700 financial advisors in the U.S.

In the last six years, the proportion of advisors selling ETFs has increased dramatically, from less than half (46%) of advisors in 2007 to nearly three-quarters (73%) who use them today. In that same period, advisors’ allocations to ETFs have more than doubled, from 5% in 2007 to 12% in 2013. According to Cogent, most of the ETF gains thus far have come at the expense of mutual funds. Furthermore, for the first time ever, advisors now say they are as likely to invest new dollars in ETFs as they are to invest in mutual funds. However, as interest in active ETFs builds, it appears that traditional fund managers are well positioned to capture (or retain) a portion of future active ETF flows.

“While provider preferences certainly exist in the ETF category, many advisors remain relatively agnostic when it comes to choosing ETFs, particularly those tracking broad indexes,” says Meredith Rice, Senior Product Director and author of the Advisor Brandscape® report. “However, the rules of engagement will change significantly when it comes to how advisors approach selecting actively managed ETFs. And that is where traditional active managers, even those late to the game, may find some real traction.”

Citing the new Advisor Brandscape® report and additional qualitative research conducted by Cogent earlier this year, Rice notes that factors such as the track record of the manager, the composition and expertise of the investment team, and the overall reputation of the firm weigh more heavily in advisors’ decision making when they consider active ETFs. As a result, traditional active managers who are already known and judged by these criteria today have a significant advantage, especially in cases where the new product is a “clone” of a mutual fund that already exists.

While these findings may come as good news for active managers considering entry into the ETF marketplace, a potential downside is that advisors, while they are open to paying more for actively managed ETFs, expect these products to be less expensive than their actively managed mutual fund cousins.

“The potential pricing issues will certainly give some mutual fund companies pause,” says Rice. “But they need to look back over the past six years of ETF history, and ask themselves if they are willing to pass on the next wave of ETFs.”

 

Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE