Fewer investors are looking to ETFs as a set it and forget it approach to investing according to a new report by Strategic Insight. Instead, they’re being used for tactical strategies and investors are making frequent adjustments to their ETF portfolios. Strategic Insight’s senior research analyst Loren Fox told the Financial Times:
“Many investors use ETFs in ‘tactical’ ways. Either to express short-term views on segments of the market, or for tax-loss harvesting, transition management or cash equitisation purposes.”
It’s something plan sponsors have been doing for awhile now – and it’s actually starting to drive growth in an investment that has traditionally been viewed as a tool for gaining passive exposure.
The same report noted that ETFs are also being used strategically – for low-cost beta solutions providing targeted exposure the specific asset classes. That trend is happening in both core and satellite portfolios as investors work to gain alpha through different strategies – long-short, sector-rotation etc.
With the industry on track to gain $100 billion in new assets in 2011 alone, investors appear to be finding new and innovative ways to use them across their portfolios – especially in today’s post-crisis market, where managers need more flexible ways to deal with volatile markets in both the short and long-term.
Pension funds are already ahead on most of these fronts as they explore ways to use ETFs to nimbly access new areas of the market and more effectively manage their cash positions.
Education is also more important than ever to the future of ETFs according to the report – ETF providers are ramping up their education efforts as ETFs become more complex. Education is also becoming key as investors seek new ways to use ETFs in their portfolios – something that is likely to continue in the coming months and years.