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ETFs Continue to Supplant Mutual Funds

Exchange traded funds continue to rise in popularity among financial advisors, according to The 2016 Trends in Investing Survey conducted by the Journal of Financial Planning and the Financial Planning Association Research and Practice Institute.

Over the past 10 years, the number of advisors using or recommending ETFs to clients has increased from 40 percent to 83 percent, according to the survey, while the number of advisors recommending or using wrap and non-wrap mutual funds dropped 1 percent and 5 percent, respectively, over the same period. No other investment vehicle saw as significant an increase in recommendation or use over the past decade as ETFs.

The survey cited lower costs, tax efficiency and trading flexibility as top reasons for the significant uptick in ETF usage.

“The vast majority of ETFs are based on indexes, including those that focus on ‘smart beta,’ and I think the growth in popularity is to a significant degree reflective of the ongoing shift among financial planners toward more ‘passive’ approaches to investing client assets,” said Dave Yeske, practitioner editor of the Journal of Financial Planning. “Even planners who still use ‘active’ investment strategies will often start with a core portfolio built around index funds, increasingly in the form of ETFs.”

Of the 283 financial advisors who responded to the survey, 24 percent indicated that they have used or recommended smart beta ETFs in the previous year, which is only a 2 percent increase from 2015. And while the 15 percent of advisors favoring actively managed funds remained unchanged from a year ago, the number of advisors preferring a blend of actively and passively management funds increased from 57 percent in 2015 to 64 percent in 2016.

A majority of advisors (64 percent) said they had a bullish market outlook for the next five years, while only about a quarter are bullish for the next six months.

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