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How are financial advisors investing their clients’ money?

The most recent edition of the Advisor Insights Guide from BlackRock’s Portfolio Solutions team sheds some light. The guide, which covers the third quarter of 2019, aggregates information from over 16,500 model portfolios advisors run for their clients.

Among the takeaways: fees are falling, usage of exchange-traded funds is increasing, investors are increasingly exposed to stocks, and there may some surprises in bond allocations.

See: Asset-manager fees keep falling. Thank retail investors

Does it cost more to be conservative?

Among the portfolios surveyed, the fewest by far had a conservative risk profile: 2,194. The moderate category had the most, with 5,397, and there were 3,232 in the aggressive bucket.

As shown below, the two categories to the conservative side of moderate had the highest average fees, while portfolios defined as aggressive had the lowest. In contrast, the two categories in the aggressive side of moderate held more securities in the portfolio, on average, than the portfolios considered conservative. Here’s the breakdown as of September 30, 2019:

Conservative Moderate conservative Moderate Moderate aggressive Aggressive
Fees, in basis points 52 53 49 50 43
Trailing 12-month yield, 3.15% 2.61% 2.34% 2.05% 1.84%
Number of securities held 12 18 18 19 17
Duration of fixed income holdings, in years 3.34 3.67 3.57 3.74 3.55

Among all portfolios, however, fees have fallen and the duration of fixed-income holdings has declined, compared with a year ago.

Related: What is factor investing?

All portfolios, 9/2019 All portfolios, 9/2018
Fees, in basis points 49 54
Trailing 12-month yield, 2.34% 2.23%
Number of securities held 17 17
Duration of fixed income holdings, in years 3.59 4.14
Bonds are more ubiquitous than you might think

Across all portfolios in 2019, U.S. stocks made up nearly half of all holdings. But bonds accounted for nearly one-third of all holdings, with more weighting among conservative accounts and scant exposure in aggressive ones.

Conservative Moderate conservative Moderate Moderate aggressive Aggressive
U.S. stock 12.5% 33.7% 44.3% 55.3% 70.5%
Non-U.S. developed markets stock 3.0% 8.9% 11.1% 13.1% 15.1%
Emerging markets stock 0.9% 3.2% 4.8% 5.9% 7.2%
U.S. bonds 63.5% 39.2% 28.2% 17.2% 3.6%
Non-U.S. bonds 12.0% 7.5% 5.6% 3.4% 0.7%
Cash 1.7% 1.9% 1.5% 1.3% 0.9%
Other (including real assets, leverage) 6.5% 5.7% 4.5% 3.8% 2.0%

See: Investors can’t get enough bond funds

Compared with a year ago, overall survey results have barely budged. The biggest variance over the past 12 months is in the non-U.S. developed markets stock, which fell from 12.8% of holdings in all types of portfolios to 10.8% in 2019.

Advisors join the ETF stampede

Investors poured over a trillion dollars into exchange-traded funds last year, and BlackRock’s survey shows advisors are going along for the ride. Usage increased compared with 2018 in nearly every category, and survey results show that the more risk tolerance the portfolio has, the more money is allocated to ETFs.

ETF Allocations
9/2019 9/2018
Conservative 29.6% 27.1%
Moderate conservative 32.2% 32.6%
Moderate 37.9% 34.0%
Moderate aggressive 39.7% 37.7%
Aggressive 47.3% 46.7%

Read: More evidence that passive fund management beats active

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2020-02-19