Exchange-traded funds have won the popularity contest of investment vehicles.
According to a recent survey conducted by the Journal of Financial Planning and the FPA Research and Practice Institute, ETFs have surpassed mutual funds in popularity. The 2015 Trends in Investing Survey found that 81% of the financial advisors surveyed are currently using or recommending ETFs with their clients versus 78% who are using or recommending mutual funds.
This is the first time since the Financial Planning Association began surveying planning professionals on their use and recommendation of various investments in 2006 that ETFs have won the "most popular investment vehicle" title among 17 other options.
"The traditional ETFs that a lot of advisors and investors have come to love have things like liquidity, you can trade them intraday [and] you don't have to wait until the end of the day, transparency, the tax efficiency because the underlying holdings don't often change," said Valerie Chaillé, FPA's practice management director, during a MoneyLife radio show episode this week. "There are a lot of things about them that are attractive to people that continue to make them – especially in an environment where the market is continuing to increase – they make them very attractive."
Advisors were in asked in the study what they believe are the most significant advantages of ETFs over mutual funds, and 76% responded "lower costs." Respondents also cited tax efficiency (55%), trading flexibility (50%), transparency of holdings (22%) and diversification (12%) as reasons they favored ETFs.
"There's also a time element," Chaillé said on MoneyLife. "What's happening in the market might dictate whether advisors are flocking toward more passive vs. active investments."
ETFs have gradually been gaining popularity since 2006, according to FPA's Trends in Investing survey.
