ETFs Reshape How Investors Access Alternatives: Report
- Personal financial optimism persists despite economic concerns.
- Trade wars, recession and inflation top the list of portfolio worries.
- Advisors increasingly leverage ETF structures for resilience.
While 75% of investors remain optimistic about their personal financial outlook, only 39% feel the same about the U.S. economy. A mere 24% are positive about global economic prospects, according to "ETFs in Focus: Risk Management Attitudes & Behaviors," a new report from State Street Global Advisors.
"As unpredictability persists, investment professionals have an opportunity to re-anchor investors around long-term goals through diversification strategies that increasingly include ETFs as vehicles for alternative investments," according to the report.
This sentiment split revealed in the study shows trade wars and tariffs (44%) as investors' top portfolio concerns, followed by recession fears (37%), unexpected inflation (34%) and market volatility (34%).
Alternatives Rising in Risk Management Toolkit
Financial advisors are increasingly turning to alternative investments as their primary risk management strategy, with 50% reporting they currently allocate to alternative assets to manage portfolio risk, according to the State Street report. This outpaces other approaches like increasing cash positions (47%) and diversifying across asset classes (46%).
When incorporating alternatives, advisors cited reducing public market exposure (45%) and finding alternative return sources (44%) as their primary motivations, the research found. Among those allocating to alternatives, real estate strategies (50%) are viewed as most effective for enhancing portfolio resilience, followed by private equity (44%).
The report indicates that ETFs are gaining traction, with 81% of advisors agreeing that "ETFs are effective tools for wealth management in current markets" and 80% stating they make alternative investments more accessible.
Generational Differences Drive Portfolio Construction
The trend appears set to accelerate, with 79% of advisors planning to increase their allocation to alternative ETF strategies over the next 12-18 months, the State Street research revealed. Most view these as long-term strategic allocations (49%) rather than tactical plays.
Despite this positive outlook, advisors still face challenges incorporating alternatives, primarily citing high fees (38%), complex valuation (37%) and limited client understanding (35%) as key barriers.
For ETF-aware investors, the perceived benefits are clear—51% agree that "ETFs provide an efficient and cost-effective way to access alternative investments," while 46% believe "ETFs make alternative investments more accessible," the report states.
This trend appears strongest among younger investors, with Millennials far more likely than Baby Boomers to view ETFs positively as vehicles for alternative investments. Generational differences extend to overall portfolio construction as well, with the report showing Millennials more likely to hold cryptocurrency (41% versus 19% for Generation X and just 5% for Boomers).
As economic uncertainty continues to shape the investment landscape, both advisors and investors appear to be building more adaptive strategies through diversification and innovative investment vehicles like ETFs, the State Street research concludes.
