Advisors Using ETFs

Fund Action

I had never looked at the advisors stories section on the iShares site until I found the above article. Yesterday I looked at most of the stories and felt encouraged about the plight of the do-it-yourself that relies on ETFs. As I read the way in which these advisors rely on ETFs I had the feeling that what they are doing is very simplistic, easily done on your own and I doubt would be worth the 1.25%-1.5% that most managers charge clients.

With the proliferation of ETF coverage and portfolios like Tim Middleton's free on the internet I think the role of an ETF advisor make more sense as a consultant charging 40 or 50 basis points or paying a few hundred dollars for a timing service instead.

One of the profiles I read was a firm that uses ETFs like I do, sort of. The one firm also buys stocks, uses CEFs and other products. For anyone that is new to this site, as much as I like ETFs they have one serious flaw which is usually a lack of dividends. There are only a handful that yield above 3%. If the experts that think we will have flat equity returns for the next decade are correct, dividends will be very important. Dividends are better captured with individual stocks and CEFs. Another lesser flaw of an all ETF is the limits on constructing portfolios. One component of what I do is manage how much beta there is in the portfolio. I think there are times where it makes sense to have more or less beta than the overall market, not too revolutionary. I'm not sure how I could do this with just ETFs other than adding or reducing tech which is not really what I have in mind.

I really am surprised that there is not more attention devoted to utilizing multiple tools. For example if you want exposure to Switzerland wouldn't it make sense to look at the ETF, CEF and some of the common stocks to figure out what your best option is, as opposed to saying "oh I want Switzerland so I'll buy the ETF." I can't be the only one that sees this.