It used to be that ETFs were linked to some broad market, cap-weighted index — simple as that. These days, ETFs come in all kinds of flavors, leveraged and inverse, commodity and currency as well as other “rules-based” ETFs — ones that base weightings on some fundamental value metric.
In short, it's getting confusing in ETF Land. In the pages that follow, we describe a few ways advisors use ETFs. Not surprisingly, the uses are as varied as the portfolio needs of advisors' clients. Take Aaron Saperstein, Joel Talish and David Passman, for example. The trio, profiled on page 98, of Westchester Wealth Management in Old Greenwich, Conn., is part of Wachovia's quasi-independent profit formula group. They use ETFs in any number of ways: to store cash for clients if asset allocations need tweaking or to allow time to pick separate account managers; to hedge or make tactical adjustments primarily in the portfolios of wealthier clients; or for building cost-efficient diversified portfolios for less wealthy clients.
For Camilla “Cam” Neri, a veteran financial advisor and partner in Retirement Capital Strategies (an LPL affiliate), in San Jose, ETFs were the cure for her own active-management blues. Neri, who's profile starts on page 100, started using ETFs roughly five years ago when she became fed up with mutual funds that couldn't meet benchmarks or even stick to their investment thesis. Today, ETFs are the core of her business. “I don't see my job as making my clients wealthy,” says Neri (note: they already are). “I see our focus as helping our clients get the returns they need to get to their goals, not trying to shoot above that,” she says.
David Beyer and his partner Mitch Stein at UBS tell their clients ETFs are just one method to get them from point A to point B — as it happens, it's an increasingly popular route, says Beyer. For the most part, Beyer (profiled on page 97) says he sticks to “cap and style” when building portfolios for clients but he does like to allocate a small portion of a client's portfolio to educated bets, he says, like REIT ETFs or ETFs that go short.
Three different people, three different practices with their own unique clients, yet they share one common appreciation: ETFs have provided them with another tool to help client's improve their chances of meeting their investment goals.