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DFMs using sector ETFs doubles

Wealth managers are increasing their use of sector ETFs as they seek a wider dispersion of returns and a more granular approach to asset allocation, according to research from SPDR ETF.


Kristen McGachey

Over half (53%) of the 50 wealth managers that participated in the survey commissioned by the State Street Global Advisors-owned ETF group said they currently use sector ETF investment strategies, with one in five saying they are using them more now than they were 12 months ago.

And a further 44% of respondents said they expect sector ETFs to be used more over the next year.

The SPDR findings support fund flow data from Morningstar, which shows that flows into European sector ETFs have more than doubled between 2016 and 2017, rising to €8.1bn from €3.2bn.

In the first quarter alone, sector ETFs in Europe recorded €4.5bn of inflows.

Longevity key

Wealth managers are also beginning to care more about the longevity of their ETF investments, which suggests they are using them beyond quick, tactical plays.

Seventy-three percent of the wealth managers in the SPDR ETF survey said the longevity of the ETF was important to them, making it even more of a key consideration than charges, which 54% of respondents ranked as important.

“Our observation is the holding period of the sector ETF seems to be longer than I would have expected,” said Claire Perryman, head of SPDR ETF’s UK business. “Some people see it as more of an opportunistic play but others are seeing it as a more fundamental part of the portfolio.”

Trump impact

Perryman said she began noticing an uptick in UK wealth managers allocating to sector ETFs after President Trump’s victory in the 2016 US election.

Charting the level of inflows since the end of November 2016 to the present, SPDR found that assets under management of Ucits sector ETFs have spiked by 47%, outpacing the Ucits ETF industry generally, which recorded a 30% boost in AUM over the same period.

ETFs with healthcare, infrastructure and financials sector biases were the immediate winners in the aftermath of the election.

Although the winners and losers have changed, “the dispersion opportunity remains,” she said.

“As wealth managers seek to build targeted exposures with less concentration risk than single stocks, we expect this trend to continue throughout 2018 and beyond”.