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Friday, December 18, 2009

Advisors Prize ETFs' Liquidity

Reported by Patricia Kelly

What factors underlie the surge in popularity ETFs have experienced over the last few years? The liquidity of ETF products is most prized by financial advisors, reveals Friday's 'Daily Metric' from Cerulli Associates, the Boston-based research firm.

The findings, which are based on a larger report –- 'Exchange-Traded Funds: Threat or Threatened?' released in November --revealed that financial advisors value ETFs' liquidity, diversification, and low fees the most (in descending order). Trailing these three factors were transparency and tax efficiency, which drew a mixed response of 'very important' and 'somewhat important'.

On the flipside, advisors considered pricing flexibility (priced throughout the day) of relatively minor value, while margin ability placed last among factors considered, receiving a 'very important' designation from merely six percent of respondents compared to a 'not important' vote from 66.8 percent.

Divergence in responses from advisors differed most based on their respective channels and the specific core markets they served.

“Advisors do not share the same view of what the most important attributes of ETFs are across all channels. Wirehouse advisors place more value on liquidity than most advisors, for example, and insurance reps are less inclined to deem liquidity very important,” writes Cindy Zarker, the report's author.

Whatever factor it is that lures advisors to the ETF market, the study makes clear that ETFs' popularity is showing few signs of abating, with over two-thirds of the sponsors surveyed in the report disclosing plans to develop five to ten new ETFs over the next year, and more than 10 percent of these firms pushing forward plans to built between eleven and twenty new ETFs. 

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