A record 76 per cent of advisers will be using ETFs in their client portfolios by the end of the year according to new research from exchange traded product provider Betashares.
Despite pockets of concern, the adoption rate continues to climb.
In a joint research project with Investment Trends, Betashares revealed 59 per cent of Australian advisers are already using ETFs in constructing client portfolios, with another 17 per cent intending to do so by the end of the year.
According to Betashares CEO Alex Vynokur, “cost-effective diversification” if the primary driver behind the surge.
“However, the findings support our observation that investors and advisers are becoming increasingly sophisticated in their use of ETFs to achieve more targeted portfolio construction goals,” he says.
Vynokur says advisers are increasingly looking beyond the cost and diversification benefits and using ETFs to access markets they otherwise couldn’t.
“While cost and diversification remain key drivers of adoption, 69 per ent of advisers use ETFs to access specific markets or asset classes,” he says.
While the rise of ETFs in retail and wholesale investing has been stratospheric (in February Morningstar said the domestic market had grown 30 per cent to about $80 billion), pundits have urged caution.
In 2019 the International Organisation of Securities Commission chair Robert Taylor called ETF risk a “haunting thing”, saying it reminded him of the hype around structured products leading up to the global financial crisis.
“A lot of the people involved with the ETF product are thinking about it the same way that people thought about structured products two decades ago,” Taylor said. “The product has a lot of components that securities market regulators would worry about.”
The explosion of ETF asset classes, themes, sectors and regions has also caused concern. In May this year Zenith Investment Partners’ Dugald Higgins warned investors to exercise due diligence and make sure they’re getting what they think they are from ETF providers.
“With a lot of these ETFs… the label on the tin does not match what’s underneath,” Higgins said. “This stuff can be dangerous,” he added, likening the misdirection of ETF providers to the “gamification” of investing.