State Street Survey: 60% of Pros Know ETNs

Advisors name ETFs as most innovative investment vehicle of the last two decades -- Products have become an increasingly vital investment vehicle
Tuesday, June 10, 2008
By James Langton, Investment Executive Magazine

Exchange-traded funds (ETFs) are changing the financial advisory business, according to new research from State Street Global Advisors and Knowledge@Wharton, the online business journal of The Wharton School at the University of Pennsylvania. The survey of 840 investment professionals found that 67% identified ETFs as the most innovative investment vehicle of the last two decades, and 60% reported that ETFs have fundamentally changed the way they construct investment portfolios.

Also, 76% of advisors believe the use of ETFs encourages fee-based models; 76% identified themselves as light-to-moderate users of ETFs, indicating that less than 50% of their portfolios utilize ETFs, just 4% report they do not use the instruments at all; 60% of respondents said they knew what exchange traded notes are, and 29% indicated that they plan on increasing their use of ETFs in the future; only 31% of advisors are currently using inverse ETFs, which allow investors to bet against a market index. However, nearly 40% report that they plan to increase their use of inverse ETFs in the future.

Advisors identified the top five most appealing characteristics of ETFs, as: low cost, liquidity, intra-day trading capability, tax efficiency, and investment style purity. The greatest disadvantages of ETFs were identified as: “unknown/untested indexes and/or portfolio methodologies” or the, “overwhelming number of choices.”

“Exchange traded products have become an increasingly vital investment vehicle for financial intermediaries,” says Anthony Rochte, senior managing director of State Street Global Advisors.

“By incorporating exchange-traded products into sector rotation, core-satellite, tax management, and portfolio completion strategies, advisors are simultaneously managing costs and risk, which helps underscore their value proposition and strengthen relationships with clients.”

“The pace at which new ETFs and indices are entering the market is clearly a concern,” said Rochte. “In light of these findings and the increasing importance of understanding index methodologies, the role of responsible product development and educational support cannot be overstated.”