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The ETFs/Mutual Funds Battle Is Greatly Exaggerated

There really is no competition between ETFs and mutual funds, the majority of advisors expect Trump-driven volatility and E*Trade adds more index funds to its platform.

Exchange traded funds have attracted a lot of fund flows over the last several years, but that’s not to say they are superior vehicles to mutual funds, argues Allan Roth, founder of Wealth Logic LLC, an hourly based financial planning firm, on 89 percent of 2016 asset inflows came from three ETF providers—BlackRock, Vanguard and SSgA—representing a weighted average fee of 19 basis points, according to FactSet. Whereas, WisdomTree, First Trust and Deutsche Asset Management accounted for $23.4 billion in outflows in 2016, and their funds have a weighted average expense ratio of 56 basis points, just a hair lower than the average mutual fund’s expense ratio. While Vanguard had the highest net inflows of any fund manager combined last year at $303 billion, $210 billion of that went into mutual funds. “I argue the data reveals that the real story isn’t about asset flows from the mutual fund wrapper to the ETF wrapper. It’s about investors realizing the impact of costs on their investment returns, and moving from more expensive funds to less expensive,” Roth writes.

Advisors Preparing For Trump-Driven Volatility

While 75 percent of registered investment advisors say markets will increase over the next 12 months, according to a survey by Jefferson National, 80 percent agree that the new administration will drive ongoing volatility. The chief concern is tax reform and how it will impact client portfolios. Some advisors are proactively investing client portfolios more aggressively and more tactically as a response. 75 percent of advisors say they are readjusting allocations to sectors or securities they expect will benefit under Trump’s policies, or bond portfolios sensitive to interest rates. “While it may be difficult to predict outcomes in times of change, advisors and their clients can benefit by controlling what they can—taking a holistic approach to planning, keeping costs low, and investing for greater tax-efficiency,” said Laurence Greenberg, president of Jefferson National. As more advisors respond by using tactical management, proactively managing risk, and adjusting portfolio allocations, tax-advantaged investing becomes increasingly important.” 

E*TRADE Expands Lineup Of Funds

E*TRADE announced an expansion to the passively managed index funds available on its trading platform with 47 new commission-free ETFs. The company also announced 1,900 more NTF mutual funds, bringing the total available to 4,400, which E*TRADE said is more than what’s offered by competitors Scottrade, TD Ameritrade, Fidelity and Charles Schwab. “The shift towards passively managed index funds and ETFs has accelerated in recent years due in part to investors’ appetite for lower cost products—understanding that fees can have an impact on their portfolio over time,” said Rich Messina, SVP of Investment Product Management at E*TRADE Financial.


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