Advisors are increasingly opting for active ETF strategies when constructing client portfolios, according to a Fidelity analysis of advisor portfolios.
In total, Fidelity found that as of the fourth quarter of 2024, 40% of advisors were using active ETFs in client portfolios. That’s up from 13% of advisors who used active ETFs in 2022. This increase is most notable for fixed-income strategies, followed by U.S. equity.
The study found the average allocation of active ETFs in clients portfolios was about 21%.
“2024 ended on a strong note for investors, as the U.S. economy continued its late-stage expansion while the Federal Reserve introduced its first set of policy rate cuts in its fight against inflation,” said Mayank Goradia, senior vice president and head of integrated portfolio construction delivery at Fidelity Investments. “Our portfolio construction team continues to see extensive interest from advisors in U.S. equities, particularly through active ETFs, for asset allocation in portfolios. Despite elevated equities valuations posing a potential risk, I’m cautiously optimistic for 2025 with the prospective tailwinds of long-term technology trends, potential tax policy changes, and deregulation efforts.”
A typical composition across the portfolios analyzed includes 68% in equities (54% U.S. equities and 14% international), 27% in fixed income (predominantly investment grade bonds) and then 3% cash and 2% other. That composition has remained consistent in recent quarters.
Within U.S. equity, Fidelity further found a 66% allocation to large caps, 22% to mid caps and 12% to small caps. The large cap allocation is up 4% compared to the previous quarter while the small cap allocation is down 3%.
In terms of ETF usage more broadly, Fidelity found that 67% of portfolios used ETFs for U.S. equity exposure (while 79% also included mutual funds), 47% used ETFs for international equities and 57% used ETFs for fixed-income.
Fidelity’s analysis also found that 54% of incoming portfolios have some exposure to strategic beta products. (Strategic beta funds are “tied to indexes that make active bets of various shapes, degrees, and magnitudes against broad market-cap-weighted indexes,” according to Morningstar.) In addition, 17% of incoming portfolios had an allocation to liquid alternatives. The average weight of alts in a portfolio was around 9% vs. 5% in 2023.
The firm regularly analyzes portfolios from advisors using Fidelity’s portfolio review and quick check functionality, as well as data from Morningstar. Its most recent findings are pulled from 3,733 portfolio reviews and portfolio quick checks conducted in the fourth quarter.
Fidelity observed that the average portfolio has 13 holdings, six different asset managers and 47 basis points of underlying blended fees.