United States, Canada, and Australia: The Countries With the Highest Stock Market Participation Rates

  |   For  |  0 Comentarios

Pixabay CC0 Public Domain

At a time when financial markets are experiencing increasing volatility, household interest in stock markets remains a key indicator of economic confidence. Which countries invest the most? According to the latest study* by HelloSafe, the citizens of the United States, Canada, and Australia are the most active. After analyzing cultural, economic, and regulatory dynamics, the authors conclude that there are significant differences from one continent to another.

To understand the results of this report, it is necessary to take into account that the data presented on this map are the most recent available, and correspond to 2023 and 2024. “As there are no official statistics on the matter, there is a margin of error between 5% and 10% due to fluctuations in stock asset ownership and the difficulty of estimating the number of such owners. The figures include investors who directly own a stock portfolio, but also people who invest indirectly in stock assets through various financial vehicles (such as life insurance, for example),” clarify the authors of the report before we delve into its conclusions.

The analysis of stock ownership rates reveals marked disparities between continents since in North America, households have the highest rates, with 55% in the United States and 49% in Canada, reflecting a strong investment culture. Oceania follows this trend, with 37% in Australia and 31% in New Zealand. In Europe, there are significant differences as Nordic countries like Sweden (22%) and Finland (18.7%) are ahead of large economies like France (15.1%) and Germany (14.2%).

In Asia, rates remain globally modest, despite the dynamism of financial centers such as Hong Kong (13.8%) and Japan (15.2%). Lastly, emerging countries in Latin America and Africa, such as Brazil (8%) and Morocco (0.5%), present much lower levels, illustrating still-developing financial markets.

Pauline Laurore, finance expert at HelloSafe, explained: “The difference in stock market participation between countries can be explained by a combination of structural factors. In countries like the United States and Canada, investment in equities is deeply integrated into retirement savings plans —through pension funds— and supported by strong tax incentives. The financial culture there is more developed, and access to markets is facilitated by low-cost platforms and favorable regulation. In contrast, in many emerging countries, financial infrastructures are less mature, investment products are not widespread, and savings are still mainly channeled into real estate or low-risk assets. Even in highly populated countries like India and China, the low level of stock market penetration (6–7%) shows that there is considerable growth potential, provided educational, technological, and institutional obstacles are overcome.”

The analysis of the absolute number of shareholders reveals significant differences between countries in terms of demographics and economic development. In North America, the United States dominates with more than 185 million investors, far ahead of Canada, with 19 million. In Asia, although the proportion of investors is lower, the volume is impressive due to population: China (98.7 million) and India (85.8 million) rank among the global leaders.

In Europe, the figures are more modest despite advanced economies: the United Kingdom (22 million) and Germany (11.8 million) stand out, while France has 10.2 million holders. In Latin America, Brazil stands out with 17.1 million investors, far ahead of its neighbors. Finally, in Africa, South Africa leads the list with 8.47 million investors, which contrasts with much lower figures in Morocco (189,500). These figures reveal the combined influence of standard of living, investment culture, and demographic weight.

U.S., India, and Brazil: The Three Best Stock Market Performers of the Last 10 Years

An analysis of annualized returns over the past 10 years shows that the United States, with the S&P 500, remains at the top with a return of 16.89%, making it one of the most profitable indices of the period. Emerging markets, especially Brazil and India, closely follow, with returns near 15.9%, offering attractive potential despite their volatility. Vietnam and New Zealand also stood out with respectable, though more moderate, returns (12.22% and 10.66%, respectively).

In contrast, markets such as the United Kingdom (2.67%) and Spain (1.65%) performed significantly worse, suggesting less dynamic growth during the period. Other European countries like Portugal (1.71%) and France (5.93%) also underperformed compared to their global counterparts.

The HelloSafe study analyzes, in a new report, the rate of household participation in the stock market across 32 countries worldwide. This study examines countries where households allocate a significant portion of their savings to equities and other investment products.

Active ETFs vs Equally-Weighted: How to Maximize the Rotation Towards U.S. Mid and Small Caps

  |   For  |  0 Comentarios

Pixabay CC0 Public Domain

The popularity of equally weighted ETFs is on the rise, with inflows into such strategies reaching net flows of $15.2 billion in 2024, a 289% increase compared to the $3.9 billion in 2023, according to Bloomberg data collected by JPMorgan Asset Management. However, according to an analysis by this firm, given the extreme levels of index concentration in the U.S. stock market, “it is crucial that investors fully understand the risks involved in shifting from a market capitalization-based approach to one based on equal weighting, particularly when active ETF options are also available.”

Divergences in Returns

Unlike the more traditional approach of weighting stocks based on each company’s market capitalization, equally weighted indices assign each stock the same weight in an index. Consequently, equally weighted ETFs give the same importance to all listed companies they invest in, regardless of their size. Therefore, they maintain underweighted positions in large companies and overweight positions in smaller names compared to their market-capitalization-weighted counterparts.

“Nonetheless, since the market capitalization and equal-weight versions of the S&P 500 have exactly the same components, historically the returns of both indices have been highly correlated,” according to JP Morgan AM’s analysis. More recently, however, this relationship has broken as the performance of the market-capitalization-weighted S&P 500 has been dominated by the Magnificent Seven. This handful of stocks currently represents about one-third of the market-cap-weighted S&P 500, but in the equally weighted index, where each of the 500 stocks receives only a 0.2% weight, the resulting allocation to the Magnificent Seven is just 1.4%.

The increasingly skewed risk profile of the two benchmark indices is leading to much greater differentiation in returns. The report notes that the strong market rotation in July 2024, for example, “helped the equally weighted S&P 500 post its strongest month in three years compared to its market-cap-weighted counterpart. At the same time, the traditional return correlation between the two indices hit its lowest level ever recorded.”

The Broadening of U.S. Equity Markets Favors an Active Approach

The study raises the possibility that the corporate earnings trends that have been driving the U.S. equity market may be starting to change, “with an earnings dynamic increasingly pointing towards a trend of earnings and results broadening.”

Thus, “it is likely that full-year 2024 earnings growth figures will continue to show a significant disparity between large-cap stocks and the rest, but the most recent quarterly results suggest that U.S. earnings are gradually becoming more evenly distributed across the market.”

The question, the firm notes, for investors is how best to position their portfolios to capitalize on these earnings trends. One way to do this is by investing in equally weighted ETFs, “which can offer diversification by reducing concentration in large-cap stocks.” However, this type of strategy “also introduces significant active risk without taking into account the differing prospects of individual companies.”

In contrast, the allocation to active ETFs, which allow portfolios to reflect strategic allocation decisions based on company fundamentals and market conditions, could lead to more optimal results. Active ETFs can offer tailored exposure to sectors and styles and potentially generate superior long-term returns, “while allowing investors to better align their portfolio exposure with their risk and return objectives,” as noted in the study.

Actively Investing in U.S. Equities with ETFs

Active alpha can play an especially critical role in equity portfolios when the future direction of the stock market is uncertain and more differentiated stock-level performance is expected. Currently, with the prospect of a broadening of returns in the U.S. equity market, active strategies can help investors access opportunities beyond the largest stocks.

Fictor US Is Born: The Brazilian Alternatives Holding Enters the United States, Expanding Its Global Presence

  |   For  |  0 Comentarios

LinkedIn

An event held at the East Miami Hotel served as the perfect platform for the Brazilian holding Fictor, with stakes in food, financial services, and infrastructure, to announce its entry into the United States market through the opening of a new office in that Florida city. In this way, through Fictor US, the company expands its global presence. It already has a presence in Portugal.

The holding, with more than 3,000 employees and projected revenues of over 1 trillion dollars, will offer from North America products and services already proven in Brazil. The entry into the new market comes through its financial division. “The expansion is a strategic move aimed at generating revenue in strong currencies and expanding the proven business model,” the firm announced in a statement. The company’s business model is to invest its own capital and partner with local associates.

To support its entry into North America, Fictor recruited economist Jay Pelosky, one of the leading global investment consultants. Pelosky, former chief emerging markets strategist and global portfolio manager at Morgan Stanley, is currently principal advisor and director of TPW Advisory, an investment boutique based in New York specializing in global macroeconomics and portfolio strategy.

With experience in more than 50 countries, Pelosky played a key role in launching Morgan Stanley’s Latin American equity investment division, leading initiatives such as the Brazil Fund and the Latin American Discovery Fund. He has collaborated with Brazilian institutions such as Banco Itaú, in addition to leading macroeconomic strategies for Ohm Research. He is also a regular commentator on Bloomberg TV and Reuters.

“Entering the U.S. market is a major challenge, but also a great opportunity for Fictor. Having an expert like Jay Pelosky to guide our strategy gives us the confidence needed to navigate the U.S. economic landscape and accelerate growth. We expect the U.S. branch to contribute significantly to the group’s global revenues by 2030,” said Rafael Góis, partner and CEO of Fictor.

In the U.S., Fictor will launch operations by providing payroll-linked credit to the private sector starting in 2025, with $10 million in company capital.

“The strategy is to ‘test the model’ and, after the pilot phase, scale the operations,” Góis stated. “The target audience for this product is the lower-middle class and the working class in the United States,” he added.

The new U.S. office marks a natural evolution for the Brazilian holding, which seeks to strengthen its international presence and foster connections with investors and partner companies. Bruna Maccari, Managing Director, will lead Fictor US, supported by a team of American and Brazilian professionals.

Beyond the United States, Fictor has expanded its reach to other continents. Through an office in Lisbon (Portugal), opened last year on one of the city’s main avenues, the group has increased its participation in the local infrastructure and energy sectors.

Fictor’s energy division, Fictor Energia, announced in September 2024 that it will act as advisor to a renewable energy investment fund aimed at raising 50 million euros for innovative and profitable renewable energy projects in Portugal. The group also sponsors energy sector events, such as the Ibero-Brazilian Energy Conference (CONIBEN), held annually in Portugal’s capital.

Eduardo Escardo Joins Santander PBI’s Team in Miami

  |   For  |  0 Comentarios

Santander Private Banking International announced a new addition to its Miami team. The firm reported through the professional network LinkedIn the arrival of Eduardo Escardo, who will bring his experience — including more than a decade at J.P. Morgan — to the firm.

Escardo, they detailed, joined the company as Senior Banker and Executive Director. “On behalf of all of us at Santander Private Banking International, we warmly welcome Eduardo,” they added.

Before joining the Spanish parent company, the executive spent more than 11 years at J.P. Morgan. Starting his career at the investment bank as an Associate Banker, he rose to the position of Executive Director as of January 2022.

Previously, his eight and a half years at the insurance company Pacífico Vida marked the beginning of his career in the financial industry. At that company, he held roles in Lima, Peru, and Buenos Aires, Argentina. Before that, he worked as Junior Brand Manager at Intradevco Industrial.

In addition to earning his bachelor’s degree in business administration from the Universidad San Ignacio de Loyola, Escardo obtained his MBA from the Darden Graduate School of Business Administration at the University of Virginia.

AIS Financial Group Announces an Alliance with Monroe Capital and EBW

  |   For  |  0 Comentarios

Pixabay CC0 Public Domain

AIS Financial Group announced in an email to its clients that, together with its partners at EBW, they will be covering the firm Monroe Capital, one of the most recognized private debt managers internationally.

“We know the importance that alternative investments have been gaining in portfolios recently, especially in these volatile environments. That is why we found it appropriate to bring a proven idea with many years of experience to the table,” the note says.

“At the same time, we are aware of the operational difficulties that these types of investments can cause, and therefore, we have ensured that it is easily accessible for all platforms, including iCapital and soon, using AIS‘s capabilities, an AMC, which will have a cumulative retail class,” adds AIS Financial Group.

Monroe Capital is a diversified provider of private credit solutions with $20.3 billion in assets. Protecting client capital against losses is at the core of Monroe’s philosophy, serving as the driver to consistently attract high-quality investment opportunities, which has enabled the Firm’s growth for nearly two decades.

AIS Financial Group was founded in 2016 as a Swiss investment boutique with the goal of offering advisory and customized solutions, mainly to independent advisors in Latin America, with a strong focus on structured products. Over time, it has expanded its asset offering to include investment funds, securitizations, and, more recently, a bond line.

Massive Sell-Offs and Corrections Reach Fixed Income: How Do Tariffs Affect Bonds?

  |   For  |  0 Comentarios

Pixabay CC0 Public Domain

The trade war continues its course with the entry into force of Trump’s 20% tariffs on the EU and 125% on China, with red coloring the Asian and European stock markets. No one escapes the sharp declines driven by the imposition of tariffs and the uncertainty surrounding the reaction of the affected countries and their negotiating capacity. Fixed income assets are also suffering the impact of tariffs and the overall context of volatility.

“Currently, markets are fearful and operating accordingly. Even after the impact of the tariff announcement last week, we have seen very diverse headlines and even a temporary risk rally triggered by a televised interview with some unfortunate statements. Progress in trade agreements with Japan and South Korea seems promising, but negotiations with China and the European Union will be more decisive for both market volatility and global economic growth,” says Aaron Rock, Head of Nominal Rates at Aberdeen Investments.

According to Marco Giordano, Chief Investment Officer at Wellington Management, fixed income markets rose amid a widespread risk-off movement. “Yields fell in major economies, led by Australia, along with Japan, New Zealand, and China. European yields followed the same path, with markets pricing in a 90% probability that the ECB will cut interest rates at its next meeting on April 17. U.S. Treasury yields fell across the curve, with the front end leading the move. In credit markets, the Credit Default Swap Index (CDX) for U.S. high yield bonds widened by 20 basis points following the announcement, 10 points more than its euro counterpart, indicating greater risk aversion in U.S. markets,” notes Giordano.

In fact, the yields on 10-year U.S. Treasury bonds rose to 4.47% before stabilizing at 4.33%, indicating a massive sell-off in the bond market. “Bond markets have shown notable fluctuations over the last two trading sessions. Government bond yields are experiencing new volatility, and credit spreads are finally showing a real impact from macroeconomic and stock market pressures,” explains Dario Messi, Head of Fixed Income Analysis at Julius Baer.

According to Rock, yield curves may continue to steepen. “Concerns about growth and pressure for central banks to intervene will continue to support short-term bonds. The behavior of the long end is more uncertain: yields could continue to rise due to inflation expectations, forced liquidations, and fears about debt sustainability; however, recession fears could exert downward pressure. Moreover, the weak 3-year bond auction in the U.S. recorded last night has intensified doubts about the safe-haven status of U.S. Treasuries, exacerbated by the loss of credibility in the country’s economic policy. We anticipate continued pressure on U.S. Treasuries,” adds the Head of Nominal Rates at Aberdeen Investments.

The Impact of Tariffs on U.S. and EU Bonds

According to Mauro Valle, Head of Fixed Income at Generali Asset Management (part of Generali Investments), over the last week, U.S. yields moved 30 basis points lower, reaching 3.9%, after Trump announced the global tariff plan and then retraced 20 basis points after the news of a 90-day suspension period.

“Real yields dropped to a low of 1.6% before returning to 2.0%; breakeven rates fell from 2.4% to 2.15%. Trump’s tariff plan impacted risk assets, and now the market is trying to assess the recession risk in the U.S. Market fears of a global recession are high and well-founded, as global trade is likely to decline significantly,” says Valle.

In his opinion, another risk factor to watch is the EU’s retaliation plan in response to U.S. tariffs: whether the EU will take a soft approach or not. “The market expects more Fed cuts, with up to 4 cuts by December, as the Fed will support the economy and employment despite the risk of inflation. But in his last speech, Powell confirmed his focus on the U.S. inflation profile. The ISM data confirmed the U.S. economy’s slowdown, and the labor report showed an improvement in non-farm payrolls but also a 4.2% unemployment rate. U.S. yields could continue to move within a range around the 4.0% level, given the high level of uncertainty and the growing term premium investors will demand for long-term U.S. yields. Considering possible Fed support, if the scenario deteriorates, the U.S. curve steepening could continue,” explains this expert.

In contrast, focusing on the European Union, Valle highlights that bund yields fell to the 2.5% level following the news of the tariffs — the level observed before the announcement of the German fiscal bazooka — and then rebounded to 2.6%. “The Eurozone scenario seems somewhat easier to interpret. Tariffs may have a moderately negative impact on EU growth but will be offset by German fiscal spending towards the end of 2025 and in 2026. Eurozone inflation is expected to continue declining in the coming months. The ECB could cut rates in upcoming meetings, bringing official rates below 2% if necessary, as the economy will be negatively affected by tariffs while inflation will likely be less sensitive to them. The market is close to fully pricing in a cut in April, and three cuts are expected before December,” comments the Head of Fixed Income at Generali AM.

Emerging Corporate Bonds and Tariffs: Beyond the Noise

We must not forget that trade policy and geopolitics have significant direct and indirect repercussions on emerging market companies. Countries like Mexico face direct consequences, though broader effects such as slowing growth, weakening risk sentiment, and emerging market currency turbulence are also evident.

For Siddharth Dahiya, Head of Emerging Market Corporate Debt, and Leo Morawiecki, Associate Investment Specialist in Fixed Income at Aberdeen Investment, credit markets have remained remarkably stable despite the rapid deterioration in risk sentiment over recent weeks. “Although emerging market credit has shown some weakness, spreads have only widened by one basis point so far in March, with a total return of -0.56%. The reaction of emerging market credit has been even milder: total returns of -0.22%, reflecting its resilience in a volatile geopolitical world,” they explain.

In this regard, they point out that local currency assets have held up against expectations of a potentially weaker U.S. dollar amid a faster and deeper rate-cutting cycle. “So far this year, the spot dollar index has weakened by 4.4%, while the Brazilian real, the Mexican peso, and the Polish zloty have posted total returns of over 3%. This should give emerging market central banks room to continue cutting official interest rates,” they note.

According to the analysis of Dahiya and Morawiecki, the greatest impact has occurred in spreads of oil and gas companies. However, they explain that this has been more due to the persistent weakness in oil prices and the intentions of the Organization of the Petroleum Exporting Countries (OPEC) to soon ease production cuts. “Although the repercussions have been limited, the tightening of financial conditions in the U.S. could lead to a rise in yield spreads globally. We are reassured by the strong initial balance sheets of emerging markets and the absence of major fiscal problems in some of the largest countries,” they conclude.

Trump’s Tariffs Could End Up Being an Opportunity for the European ETF Industry

  |   For  |  0 Comentarios

aranceles Trump oportunidad ETFs europeos
Pixabay CC0 Public Domain

The total unpredictability and the unprecedented policy shifts of the Trump administration, along with Europe’s seismic response to these, have led to a drastic reversal in investor sentiment and positioning in recent times. Experts at Xtrackers by DWS have identified several significant changes in performance and asset allocation, including that investors are moving away from U.S. equities and the Magnificent Seven toward regions previously “forgotten” and with low exposure such as, for example, Europe and China.

“There is a clear reversal in the European narrative following the elections in Germany and the change in the U.S. approach to the conflict between Russia and Ukraine. From our point of view, this makes the recent rally in Europe more than just a reversal effect. In times of high uncertainty, ETF flows seem to indicate that the market has finally heard the wake-up call for greater diversification beyond U.S. large caps,” they explain.

Chart: Relative performance versus the S&P 500 (last 12 months, total return in dollars)

U.S. equity ETFs are seeing a sharp drop in new inflows, as investors turn to European, global, and emerging market indices.

One of the main conclusions they draw is that the market inflection point could open opportunities to recalibrate portfolios, as these are experiencing a key reversal of the so-called “Trump Trade”, with a sharp drop in U.S. equities so far this year. In contrast, they point out that more attractive valuations of European equities, along with announcements of larger infrastructure and defense investments, have pushed markets upward in Europe. “This movement is supported by structural factors, such as the new uncertainties around AI and the capital expenditure (capex) investment story that comes with it, as well as the renewed fiscal momentum in Europe,” they clarify in their latest analysis.

At the same time, they believe that geopolitical tensions could make recalibrating risk exposure a priority: “For investors, this represents a window to reposition their portfolios, diversify beyond traditional winners and take advantage of evolving macroeconomic and thematic drivers. Several regions and sectors have been identified as structural laggards by investors (including Europe, China, and the world excluding the U.S.). With very low initial sentiment and a new geopolitical environment, these could become candidates for sustained recovery.”

The New Narrative: Europe’s “Whatever It Takes”

On one hand, the experts point out that a possible ceasefire between Russia and Ukraine is improving market sentiment, which contrasts with the urgency of EU members to substantially increase defense spending, with the goal of reducing their dependence on the U.S. “Germany has announced plans to make major investments in infrastructure and defense, financed through a relaxation of the debt brake and a special fund of 500 billion euros. This could increase indebtedness and the public debt ratio, but at the same time boost economic growth. Other EU countries are likely to follow this path,” they note as an example.

From the firm, they expect these measures to accelerate growth, especially starting next year. Xtrackers forecasts estimate that Germany will grow 0.4% in 2025 and 1.6% in 2026. For the Eurozone as a whole, they project growth of 1% in 2025 and 1.5% in 2026. Meanwhile, the ECB has further supported European markets with interest rate cuts, making equities more attractive compared to traditional savings products and, over time, easing the interest burden for companies.

Lastly, private consumption is beginning to recover thanks to a surprisingly strong labor market and declining inflation. Additionally, macroeconomic surprise indicators have turned positive for Europe. “We believe the euro could strengthen in the short and medium term. Moreover, European stocks, especially mid-caps, which have lagged in the recent rally, could benefit from the planned spending increase,” the analysts explained, adding that Europe’s macroeconomic momentum has become a tailwind for equities so far this year, while U.S. indicators have turned downward.

“Positive economic environment, positive risk appetite, positive structural factors (the historically forecasted higher EPS should drive superior profitability over the cycle, the adjusted valuation of Europe’s SME sector compared to large caps is below the historical average), greater domestic market exposure than large-cap companies,” conclude the experts at Xtrackers.

The U.S. ETF Industry Records Net Inflows of $298 Billion in Q1

  |   For  |  0 Comentarios

industria ETF EE.UU. entradas netas Q1
Image Developed Using AI

The ETF industry continued to deliver record-breaking numbers: in the United States, the sector received net inflows of $298 billion during the first quarter, according to ETFGI’s March 2025 report on the state of the ETF and ETP industry. The report highlights that this figure is the highest ever recorded, and that March marked the 35th consecutive month of net inflows. Will the spell be broken going forward?

“The S&P 500 Index fell 5.63% in March and we are down 4.27% YTD in 2025. Developed markets excluding the U.S. index dropped 0.36% in March and rose 5.70% in 2025. Denmark (-11.58%) and the United States (-6.34%) posted the largest declines among developed markets in March,” said Deborah Fuhr, managing partner, founder, and owner of ETFGI.

“The emerging markets index rose 0.65% in March and 0.91% over the course of 2025. The Czech Republic (+14.00%) and Greece (+13.13%) posted the highest gains among emerging markets in March,” she added.

As of the end of March, the ETF sector in the United States comprised 4,140 products, with assets totaling $10.40 trillion, from 384 providers listed across 3 exchanges.

In March alone, ETFs recorded net inflows of $96.24 billion. Equity ETFs registered net inflows of $41.56 billion, bringing total Q1 inflows to $108.53 billion—surpassing the $106.41 billion in net inflows during Q1 2024.

Fixed income ETFs brought in $11.43 billion in net inflows in March, raising total Q1 net inflows to $56.66 billion, well above the $31.68 billion recorded in the same quarter of 2024.

Commodity ETFs saw net inflows of $6.61 billion in March, pushing Q1 inflows to $11.74 billion, a turnaround from net outflows of $4.93 billion in Q1 2024. Meanwhile, active ETFs attracted $32.28 billion in net inflows during the month, with Q1 net inflows reaching $120.78 billion—nearly double the $63.23 billion seen in the same period of 2024.

The top 20 ETFs by new net assets collectively brought in $72.98 billion in March. The iShares Core S&P 500 ETF (IVV US) gathered $23.63 billion, the largest individual net inflow.

Finally, the top 10 ETPs by net assets collectively gathered $519.03 million in March. The MicroSectors FANG+ 3X Leveraged ETN (FNGB US) saw the largest individual net inflow, totaling $186.27 million.

During March, investors favored investments in equity ETFs/ETPs, the report states.

U.S.: SMA-to-ETF Conversions Are Growing

  |   For  |  0 Comentarios

conversiones SMA a ETF en EE.UU.
Pixabay CC0 Public Domain

The tax efficiency offered by ETFs has made them the preferred structure for advisors. Given the rising wealth of U.S. retail investors, advisors are expected to continue focusing more on tax-minimizing solutions, and the transfer of assets from separately managed accounts (SMA) to the ETF structure may be one of the components, according to the study The Cerulli Edge–The Americas Asset and Wealth Management Edition.

In 2017, 29% of practices focused on high-net-worth (HNW) clients—those serving households with $5 million or more in investable assets—offered guidance on tax planning. That proportion had increased to 45% in 2023.

In a 2024 Cerulli survey, HNW firm executives ranked tax minimization first, alongside wealth preservation, as the goals they perceived as most important for their clients: 73% rated them as very important.

Beyond tax efficiency, operational efficiency—including cost—is a critical component of SMA-to-ETF conversions. “The use of the ETF structure can enable more agile security purchases and avoids the need to distribute them across accounts, a challenge that grows along with the number of accounts, the complexity of the strategy, and the lowering of the minimums to access SMAs,” says Daniil Shapiro, director at the Boston-based international consultancy Cerulli.

“Even if these ETFs are intended solely for the firm’s clients, the ETF structure solves a major operational challenge. It has been suggested that ETFs can help an advisor generate hundreds of thousands in cost savings,” he adds.

The addressable market for SMAs and other advisor-managed securities to be converted into ETFs remains difficult to define at this early stage. The Cerulli study estimates that the total figure for the SMA sector stands at $2.7 trillion, of which more than half ($1.6 trillion) corresponds to wirehouses, and another $484 billion to the RIA channel.

However, according to the study, 45% of advisors report using separately managed accounts, compared to 90% who use the ETF structure.

The average SMA allocation for an advisor is 7.7%, although it declines rapidly for lower-market-base practices. Advisors with $500 million or more in practice assets report a considerable allocation of 12%, which they plan to increase to 15% by 2026.

“It is possible that, although initial discussions around conversion focus on the benefits for RIAs, there is a broader group in the wirehouse channel,” notes Shapiro.

Cerulli states that the main challenges for these conversions will be price and scale. With ETF launch costs and annual operating costs running into hundreds of thousands of dollars each, wealth management firms will need to contribute significant assets for each ETF conversion to make it attractive,” says the Cerulli director.

The consulting firm believes there is a significant opportunity for white-label providers and ETF issuers to offer support to RIAs and other clients in the wealth management segment interested in launching their own ETF product or converting.

Direct Indexing Strategies Have Surged in Recent Years, but They Are Still Not Popular Among Financial Advisors

  |   For  |  0 Comentarios

UMH adoption challenges
Pixabay CC0 Public Domain

The industry’s attention around direct indexing has surged over the past five years. However, adoption of these solutions among financial advisors has yet to match the perceived popularity across the wealth management landscape, according to the report The Cerulli Edge–U.S. Managed Accounts Edition.

According to the Boston-based global consultancy, overall demand for separately managed accounts (SMAs)—including direct indexing strategies—remains high throughout the wealth management sector.

At the end of 2024, direct indexing assets totaled $864.3 billion, compared to $9.4 trillion in indexed ETFs and $6.6 trillion in mutual funds. Adoption of direct indexing models remains low at $17.2 billion, but this has more than tripled since Q4 2021.

About half of distribution executives in 2024 cited model-based SMAs (53%) and manager-directed SMAs (44%) as the most in-demand products for wirehouses and broker/dealers.

While demand is not as strong among independent registered investment advisors (RIAs)—with 27% demand for model-based and 34% for manager-directed—there is still substantial interest in these strategies.

By the end of 2024, direct indexing strategies accounted for 37.6% of manager-traded assets declared by SMA asset managers, more than doubling since 2020.

Although the sector has seen strong growth in direct indexing, there is still a long way to go, as only a small segment of financial advisors has adopted the solution.

In 2024, 18% of advisors reported using direct indexing strategies, up from 16% in 2023. More than a quarter of advisors (26%) choose not to use it despite having access to the strategy, and 12% do not know what direct indexing is.

“Advisor education is crucial for adoption, as it’s unlikely that advisors will recommend direct indexing strategies to their clients if they don’t fully understand them,” explained Michael Manning, research analyst at Cerulli.

“Wealth and asset managers who want advisors to adopt these solutions must make a concerted effort to educate them on potential use cases, added benefits, and the tax optimization element,” he added.

Although both the buzz around direct indexing and the interest from industry firms are significant, it’s important to remember that the core goal of these strategies is to deliver better outcomes for clients to help them meet their objectives.

“As the industry evolves and product innovation moves rapidly, stakeholders must continue to monitor how their offerings fit into the changing ecosystem,” said Manning. “Both wealth and asset managers are working to add these capabilities to their platforms, so adoption is likely to be uneven, and firms that create the best advisory experiences will gain market share,” he concluded.