Why do you use trade-traded price range? It was speculated to be an easy question to heat up a room of a number of the country’s top economic advisors. Yet the query sparked a communique that blanketed the whole lot from tax-loss harvesting and hedging to the dangers of specializing in pure overall performance in preference to investment effects.
Despite differences in method and opinion, the nineteen advisors who amassed in Barron’s places of work for an ETF micro-convention final week shared one view in commonplace: ETFs, for all in their attributes, isn’t a strategy—they are a tool that has allowed advisors to reconsider how they work with clients, and how they run their companies. Read the edited excerpt underneath to pay attention to their mind on how they use ETFs, various tax and options strategies, and when energetic management nonetheless makes sense.
Barron’s: Let’s begin with the vast query. Why ETFs?
Peter Rohr, Merrill Private Wealth Management: ETFs permit us to control the controllable. We can manage fees, we are able to control taxes, and we will control the danger stage.
So it’s no longer just which you choose to index over stock-choosing?
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Steve Hefter, Wells Fargo Advisors: We use ETFs while we need to drill down on a spot that we will get to the usage of mutual finances, one by one controlled accounts, or individual equities. I might make the case that a huge-primarily based international ETF won’t be as excellent as an actively managed mutual fund for global equities. But if we assume that Poland, Mexico, Egypt, or any USA makes experience to us, we will invest a small part of the money the usage of ETFs. It’s a way to refine our investment method.

Raj Sharma, Merrill Private Wealth Management: We additionally use each active and asset control. With the ETF, it’s simplest a device, for my part; it’s not an approach. For customers, what subjects is the outcome? ETFs aren’t a panacea for all issues, proper? I still think energetic management has a huge role to play, in particular in emerging markets and, within the U.S., in small-cap stocks, whether or not it’s mutual finances or portfolios you construct.
How to Play ETFs in Japan and Other Emerging Markets
How to Play ETFs in Japan and Other Emerging Markets
Gil Baumgarten, Segment Wealth Management: ETFs are in all likelihood 50% of our commercial enterprise. We run energetic techniques, too, however, we manage them in-residence. We take tax losses at the positions that we manage, and we use ETFs as a placeholder interior there while we want to keep our marketplace publicity. We also sell alternatives and protected calls in opposition to ETFs. Those varieties of matters just can’t be accomplished in an actively managed account.

Dan Ludwig, Salomon & Ludwin: The issue that’s vital for us, and why ETFs are so large to our commercial enterprise, is we will pass from dealing with $1 billion to $3 billion without tripling the dimensions of our company. It permits us to not simply consider investments, however additionally about precise clients and their desires, instead of thinking about hiring or firing this or that manager. It has created a new manner of searching at our business.
Ron Vander [of Morgan Stanley, Private Wealth Management] tells a first-rate story about how he fired his asset managers. Do any of you have got a similar experience?
Frederick Keator, Keator Group: We additionally fired all of our managers, due to the fact we went through a period in which we saw that they would take 0 losses. We watched them go into the cease of the year with losses inside the debts, but they could now not e-book those losses, so clients could pay taxes the following April. [If managers had sold losing securities, clients could have used those losses to offset gains elsewhere in their portfolios.] That simply was intolerable to us. We desired to control more of that process ourselves.
Stewart Mather, The Mather Group: A lot of our clients are executives with concentrated positions, and tax-loss harvesting provides lots of value in that recognize. So we’ve equivalencies plugged into our rebalancing era that doesn’t violate the wash sale rule. [The rule disallows taking a loss on investment if you repurchased the same or similar investment within 30 days before or after selling.] That gives them a close proxy to that asset magnificence, however, they don’t violate IRS regulations.

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