5 reasons advisors are turning to ETFs

Canadian investment advisors expect a 50% increase in their allocation to ETFs over the next two years, finds a new survey of 150 advisors by Evolve ETFs.

The five main reasons are:

• low fees (72%);
• the ability to capitalize on specific themes (64%), including blockchain and AI, cannabis and cybersecurity, among others;
• more liquidity (58%);
• transparency (57%); and
• having a relationship with a fund issuer (41%).

The average book size of the advisors surveyed was $100 million to $250 million, and their clients were aged 45 to 65 years old, on average. More than half of the advisors’ books (60%) were fee-based, while 21% of their assets, on average, were in ETFs. Only 2% of those surveyed didn’t use ETFs.

Read: Canadian ETFs see net outflows of $434M in June: report

One theme that has yet to catch on in the ETF space is responsible investing, the survey shows. While nearly 35% of advisors say RI considerations factor into their decision-making, 54% say it doesn’t. About 11% aren’t sure how to approach it.

But, “more advisors are using active ETFs versus passive,” the survey says, despite “only 20% of Canadian ETFs assets [being] active.” This suggests the drive for passive funds may come mainly from institutional investors.

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For most of the advisors surveyed (93%), an active approach is most important when investing in small-cap equity ETFs versus mid- (83%) and large-cap equity funds (33%). In the fixed income ETF space, active approaches were most appreciated in the high yield space (81%), and when funds invested in preferred shares or senior loans (62% and 63%, respectively).

The advisors surveyed do their homework, with their top source for information being fund issuer websites. Almost 80% “pick their own ETFs versus using their recommended lists (24%) or proprietary models (14%),” says the Evolve ETFs survey.

However, due to incoming regulations and burdens, the firm expects “the importance of recommended lists and models to increase over coming years.”

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