ETFs and active management: it turns out they do go together

ETFs and active management: it turns out they do go together

ETFs and active management: it turns out they do go together Just not in the way you think. New statistics suggest institutional money managers rely on ETFs more than first thought.

Blackrock’s U.S. ETF unit said Tuesday that approximately $56 billon of its $82 billion in net ETF flows in 2014 were from institutional investors and portfolio managers. The traditional view in the industry is that institutional investors eschew passive index ETFs in favour of actual stocks and bonds.

That couldn’t be farther from the truth.

Daniel Gamba, iShares’ head of institutional sales for the Americas, suggests investors are using passive ETFs in both a tactical and strategic manner, and most importantly, as key components in their client portfolios. “Everybody talks about active versus passive,” says Gamba. “They say active managers don’t like ETFs. They’re the biggest users of ETFs.”

WP reached out to Brent Vandermeer, an Ottawa-based portfolio manager with Hollis Wealth Management for his reaction to Gamba’s statements. It turns out he’s doing exactly what Gamba suggests is happening in the ETF marketplace.

In a quick email Vandermeer states, “Good timing… this is exactly what I do. I’m a strategic and tactical asset allocation Portfolio Manager running discretionary models with about 70% ETF’s. It’s not just to plug holes either but to build out the core positions of the portfolio. In fact, I only use active managers or individual stocks as the “satellite” positions to these core ETF’s.”

You would think portfolio managers would use ETFs to plug holes in their client portfolios but Vandermeer’s remarks suggest many are doing the complete opposite using active managers or individual stocks to augment core positions; not the other way around.

That’s great news for firms like Vanguard that focus on passive ETFs and mutual funds. For years Vanguard’s been leading the active-passive debate with Vanguard clearly on one side of the argument. Taking in $271 billion in 2014, this latest revelation by iShares puts Vanguard in the driver’s seat when it comes to AUM growth.

At the end of the day Canadian financial advisors can expect ETF assets in Canada to grow much faster than many industry experts have been predicting.

Let the assets come rolling in.