State Street Global Advisors (SSGA) says it has seen a rise in advisers outsourcing the risk management and diversification necessities of their clients’ portfolio to ETFs.
“The reason that this has really grown over particularly over the last 12-18 months really is because advisers and investment groups are looking outside of their expertise, and what their clients are really looking at is asset allocation,” SSGA Australia head of SPDR ETFs, Shaun Parkin, told SMSF Adviser.
“What they’re looking to do is get very research-driven, robust process around diversification, and because these types of clients really like the listed space in particular, using ETFs really feeds into that,” he said.
Mr Parkin said the developing capacity of ETFs to match the investment needs of trustees is driving this growth.
“From a strategic asset allocation perspective in particular, advisers need to get the client to understand what a balanced return looks like and what their return target is,” he said.
“That’s come about as goals-based planning has really increased with growing emphasis on the end result or the expected result.”
In a low-yield, high-volatility environment, SSGA’s Investment Solutions Group (ISG) Asia-Pacific region head of strategy and research Thomas Poullaouec said clients are putting a greater emphasis on more secure returns.
“We are living in a world with lower growth, lower productivity and weaker demographics, meaning we are also living with lower expected returns from all asset classes. While returns may be modest, it gives clients an extra layer of security knowing what they can consistently expect when investing,” Mr Poullaouec said.
With market volatility likely to persist, Mr Poullaouec believes SMSF interest in ETFs will continue to grow.
“I think that makes organisations that can give their backing to ETFs really attractive to an adviser because what they want is to avoid anything going wrong with their client’s portfolio,” he said.
“What we’re seeing is advisers that prefer to have someone who can clear out the risk, not just financial but also reputational, if something happens to their client’s investment.”