Study suggests wealthy avoiding mutual funds in favor of indexing

Jun 6th, 2007 | Filed under: Portable Alpha & Alpha/Beta Separation | By:
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As regular readers will know, we believe that unbundling active and passive management leads to greater fee transparency, more flexibility and ultimately more tailored portfolios.  While this trend may not be immediately apparent in the day to day decisions made by advisers and investors, it reveals itself in the twin growth trajectories of ETFs and hedge funds (see related posting).  ETFs, after all, are the cheapest way for an individual investor to buy pure beta and hedge funds – believe it or not – are often a cheaper way to buy active management than purchasing it embedded in mutual funds.

So when we see headlines suggesting that the wealthiest American investors are shying away from ETFs, we wonder what’s going on.  Yesterday, a few media outlets picked up on an interesting study by Advisor Perspectives that showed index funds comprised less than 4% of the portfolios of the wealthiest American (and, supposedly, the most sophisticated investors).  This does sound low.  And so it’s no surprise the headlines rang out: Wealthy hold few assets in indexed funds, and Study: High-Net Worth Investors Not Keen on Index Funds.  Conclusion: smart investors shun indexing.

But after a detailed reading of the study and a phone call to its author, Advisor Perspectives CEO Robert Huebscher, it appears the universe is still unfolding as we have hypothesized.


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