Client investments implemented through the sophisticated application of ETFs

ETFs help advisers simply asset allocation.

A growing number of advisers are turning to ETFs as a tool to deliver simplification and scale to their business. However, according to BlackRock’s leading ETF business, iShares, it is the way that ETFs are being applied in clients’ portfolios that heralds an underlying shift for ETF usage.

“Interestingly, despite the relatively young market in Australia, we are now also seeing increased sophistication of ETF use among advisers,” said Jonathan Howie, Director and iShares Specialist at BlackRock.

“ETFs are now being used to their full potential, because they are no longer viewed as just a core exposure instrument, but are increasingly being applied at a more granular or thematic level.

“Similar to experiences in other markets, ETFs are also being increasingly used by advisers in a range of ways – as a rapid access tool for dynamic asset allocation; blended together with stocks, other ETFs and with active funds to deliver a robust portfolio outcome for clients and to reinforce the advisers’ value proposition.

“A benefit of including ETFs in a wider portfolio today is that advisers are able to truly express a broader range of views for their clients, for example in looking at particular segments of a given market or the globe, all the while offering greater flexibility and often lower cost. This ultimately means that advisers have the means to demonstrate greater value to clients.”

According to Mr Howie, advisers are leading the charge in Australia for the adoption of ETFs and this has helped deliver a year of strong growth.

“It has been a big year for ETFs, with the ASX ETF industry seeing over $A1.4bn in new client money flows for 2013 year-to-date, which is higher than any prior full calendar year. And it looks as if this growth is set to continue with advisers at the wheel.

“Asset flows this year certainly show a preference for international equity exposures, as advisers and their clients recognise that investment opportunities are truly global. With ETFs, investors now have a toolkit to match the global nature of markets. They can easily and quickly access exposures in the investment themes they want and can mix-and-match these to create a truly tailored client portfolio.

According to iShares data, investors seeking access to international markets have been a key driver of the increase in ETF use by advisers.

“As an industry, the main theme based on ETF net flows this year has been international equities, which equated for 57 per cent of new money; and also Aussie equity income which saw 24 per cent of new money flows,” he said.

Mr Howie went on to say that as the ETF journey enters an age of more sophisticated use, advisers can note these instruments have to date done what they have been designed to do through market gyrations.

“As a result, ETFs have earned even greater trust and this in turn has helped to drive growth,” he said.

Mr Howie concluded: “With greater understanding of the opportunities that ETFs present as part of the broader investment toolkit, we expect to see greater use of ETFs to complement active funds and individual stocks, as investors build more efficient and flexible portfolios.”

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