Morningstar Advisor - August/September 2011 - (Page 10)

On Topic Do You Use ETFs Strategically or Tactically? Let us know your thoughts at magazine_editor@morningstar.com “I use ETFs in both manners. Strategically, I use them in overall asset allocations to take advantage of their low fees and inherent tax efficiency. Also, I tend to use them strategically in places where I feel active managers have lower odds of beating index returns (like U.S. large-cap areas). But I will also use them tactically, “I use ETFs infrequently. Since I use broad indexes for passively managed allocations, Quick Poll (given June 21, 446 responses) 1 Have ETFs changed the way you manage your clients’ assets? Yes, significantly Yes, a bit No, not at all 2 Why do you put client assets in ETFs? (select all that apply) Low costs Access to specific asset classes Portfolio diversification Tax efficiency 3 What new ETF trends are you most excited about? Active ETFs New commodity ETFs (such as copper) Dividend ETFs Using ETFs in 401(k) plans 20% 26% 27% 27% 80% 75% 72% 59% 36% 45% 19% I am fine using the mutual fund versions. Fidelity’s 10-basis-point sometimes in conjunction with an actively managed fund, in areas where I do feel managers can add alpha (like emerging-markets debt). I will use ETFs in this manner because I can set limit or stop orders on them to take advantage of sudden price movements or implement selling strategies that I cannot do with open-ended funds.” Edward Durica, CFA Johnston & Associates Denver, CO fee for Fidelity Spartan Total Market Index FSTMX is hard to beat, and the fee is lower for larger account balances (ditto Fidelity Spartan International Index FSIIX). I have used ETFs for a client who has a captive retirement plan in a brokerage house with high fees. To avoid loads, etc., we have used Vanguard Total Stock Market ETF VTI in that account. I don’t market-time and generally think that ETFs have developed to serve brokerage houses and market-timers. While their market price vs. NAV has generally been tight, the fact that there was a little breakdown with some ETFs in the stress test of 2008–2009 is another reason I prefer the mutual fund structure.” Nicole Raphaelson, CFA Seal Cove Investment Advisors Hingham, MA “I primarily use ETFs in managed- money platforms for strategic purposes. Otherwise, I have used them in variable-annuity contracts as subaccounts, gaining clients exposure to specific market sectors in a strategic fashion. I find them too volatile to use tactically unless through a UMA account.” Mitchell H. Grant, ChFC Lincoln Financial Advisors Columbus, OH “Both. Not only are ETFs part of our 4 Agree or disagree: I’m able to evaluate the strengths/weaknesses of an ETF as easily as or more easily than I can with mutual funds. Agree Disagree 50% 50% strategic (long-term, threeto five-year) allocations due to their liquidity and both tax- and fee-friendly structures as a way to gain “beta” to various asset classes in the portfolios, but ETFs 5 Do you use ETFs for fixed-income exposure? Yes No 57% 43% also play into our tactical (shortterm, three- to six-month) allocations, as they offer an easy way to increase and/or decrease exposure in certain areas by selling/buying them again in a fairly tax/fee-friendly and highly liquid (for most ETFs) structure.” Daniel J. McGilvray, CFA Highland Private Wealth Management Bellevue, WA 10 Morningstar Advisor August/September 2011

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2011

Morningstar Advisor - August/September 2011
Contents
Contributors
Letter From the Editor
Simplicity and Design Matter
Do You Use ETFs Strategically or Tactically?
The Institutional Way
How to Analyze an ETF
Eyeing ETFs’ Next Chapter
Small-Cap/Large-Cap Flip-Flop?
Four Picks for the Present
Investment Briefs
Morningstar Investment Conference
Pitfalls of Peer Groups
A REIT Recovery, With a Catch
Turning Fund Distribution on Its Head
Here Come ETF Managed Portfolios
Circle These Picks Amid the Crop of New ETFs
ETF Analyst Favorites
Beware, the Accidental Portfolio Manager
It’s the Destination, Not the Vehicle
New Growth, Rooted in Experience
Better Ways to Look at ETFs
How to Better Manage Your Clients’ Future(s)
More Bargain Than Bubble
Cheap, Local, and On a Roll
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
First-Quarter Assets Hit an All-Time High
You Say You Want a Revolution?

Morningstar Advisor - August/September 2011