ETF Adoption Jumps to 90% Among Advisors: Survey

Nine out of 10 financial advisors are using ETFs in some capacity and that number is expected to grow as their use spreads to asset classes like real estate and commodities, according to a new report from Cerulli Associates.

ETF assets have grown by 17%, or $1.4 trillion so far this year, with net flows of $526 billion, Cerulli said in its report. In July alone, ETF assets grew $329 billion, or 3.6%, mostly on market gains. The month was the second-strongest ever with $119 billion in net inflows, the study said. 

ETF use has surged as advisors are expanding their usage beyond traditional asset classes. According to the Cerulli report, emerging markets ETFs are poised for growth, with 51% of advisors currently using them and an additional 13% planning to incorporate them in the future. Alternative ETFs, including commodities, REITs, and infrastructure, are also gaining traction, with 27% of advisors currently using them and 9% planning to add them to their portfolios.

"Advisors are increasing allocations to ETFs as they become more comfortable with the product and its use across a wider range of asset classes," the report read.

U.S. equity remains the most popular asset class for ETF usage, with 97% of advisors currently employing U.S. equity ETFs in client portfolios.

International/global equity and U.S. fixed income follow closely behind, with approximately three-quarters of advisors using ETFs in these asset classes.

ETF Adoption Across Asset Classes; Active Skeptics

The report highlights that advisors are becoming more comfortable with ETFs as they accumulate longer track records. This increased familiarity, combined with ongoing product innovations, has been crucial in driving the continued growth of passive products’ asset market share, Cerulli notes.

Despite the overall growth trend, some ETF categories remain less popular among advisors. The report states that more than 75% of advisors do not use currency-hedged, derivative income or leveraged/inverse ETFs.

Cerulli attributes this to a lack of understanding of these more complex asset classes compared to core offerings like U.S. equity ETFs.

In terms of specific ETF performance, the report indicates that July 2024 was particularly strong for the industry. ETF assets grew by $329 billion (3.6%), with $119 billion attributed to net inflows, marking their second-strongest month ever.

Large blend, small blend, intermediate core bond, and digital asset ETFs each topped $5 billion in net inflows for the month, according to Cerulli’s analysis. 

While ETF issuers are focusing on the growing popularity of active ETFs, the report said two-thirds of advisors "agree or strongly agree that it is difficult to identify active managers that will outperform indexes consistently."