ETF strategists used to be the “next big thing”.
There was everything to like: They were product experts, had fee-only business models, provided tax efficient advice, could chop and change asset allocations when necessary. They made everyone’s lives – financial advisors most of all – a lot easier.
Seeing their potential gatekeeping role, ETF issuers sought to enchant them. For ETF issuers, the thought of having a single point of call for contacting advisors – rather than an Excel sheet with thousands of rows, detailing every advisor by locality and region – was just too tempting.
The Wall St Journal called ETF strategists the “new Kingmakers”.
But then something happened. The money they managed – which fell mostly into managed accounts – stopped growing. Then started dropping. In 2013, ETF strategists controlled $100B. Yet by 2016 it was down to $75B. ETF.com declared “ETF Strategist Space Struggling To Grow.”
Partly because ETF issuers began aggressively rolling out their own model portfolios – in effect, providing the same service of an ETF strategist – free of charge. Equally crucially, advisors became more ETF-literate. Meaning there was less need to outsource portfolio construction to ETF experts.
Whatever the exact reasons, many started wondering whether it was all over for strategists. But is it?
There is life in the ETF strategist dog yet, a new report from SEI Investments Company, the Pennsylvania-based asset manager, has found. Assets controlled by these groups have been on the uptick since Q3 2017, when they crossed over into $115B.
“High profile failures in recent years had some industry observers questioning the future of ETF strategists, but ETF-centric investment solutions quickly rebounded and are reaching new heights,” the report found.
“Additional growth is likely to come from strategists selling the algorithms behind ETF managed accounts for use by other advisors, asset managers and institutional investors.
“In this way, the influence of ETF strategists may extend considerably beyond what their still relatively modest asset levels would indicate.”
ETF strategists and robo-advisors were working a similar street, SEI said. Both may work to squeeze traditional distributors fees, while both were using technology to “spawn entirely new ways of managing money and communicate with investors.”