Insight into a universe of investment strategies that is quietly becoming a force in the ETF industry.
In January 2012, Morningstar released the ETF Managed Portfolios Landscape Report, a comprehensive review of strategies that primarily use exchange-traded funds and
that are contained in our separate account database.
ETF managed portfolio strategies have more than 50% of portfolio assets invested in exchange-traded funds and represent one of the fastest-growing areas of the managed-account space. The landscape report tracked nearly 370 strategies from 95 firms with collective assets under advisement, or AUA, of $27 billion as of September 2011--a 43% growth rate over the previous 12 months.
We estimate that the total ETF managed portfolio space is likely between $40 billion and $100 billion when considering discretionary and non-discretionary assets and model portfolios. Strategy launches have increased dramatically in recent years: Nearly two thirds of the strategies started in 2005 or later, and 30% of the strategies are less than three years old.
The growth can be explained rather succinctly. Whether mandated by law or continued market pressures, the fiduciary standard will continue to grow as the standard for managing a client's portfolio, and the shift to a fee-based compensation structure follows. This shift, for many, has led to the outsourcing of the money-management function to ETF managed portfolio firms. Advisors continue to focus on gathering and retaining client assets and managing a client's overall financial profile, while ceding more of the actual portfolio-management duties to strategist firms.
The industry response to the landscape report has been tremendous. We anticipate tracking more than 500 strategies with $42 billion in strategy assets through March 31, 2012. We'll be analyzing potential new strategies that have been added to our separate-account database for inclusion in this universe in the coming weeks.