Advisors Turn To Sector ETFs To Add Diversification, Alpha To Client Portfolios

According to a survey of 419 financial advisors and wealth managers conducted by State Street Global Advisors (SSGA), the asset management business of State Street Corporation (NYSE:STT), the vast majority of investment professionals (85 percent) are using exchange traded funds (ETFs) to gain exposure to individual sectors or industries. More than one-quarter of survey respondents (26 percent) report that over 20 percent of their assets under management are allocated to sector/industry ETFs.

Advisors' top reasons for incorporating sector and industry ETFs into client portfolios include:
  • Portfolio Diversification (cited by 66% of respondents)
  • Expressing Tactical Views (65%)
  • Obtaining Alpha (49%)
  • Managing Risk in the Equity Market (42%)

"The lower for longer return environment has many investment professionals taking a more precise approach to asset allocation, which favors sectors and industries over style-based investing," said Nick Good, co-head of the Global SPDR business at State Street Global Advisors. "From 2000 to 2015, the average yearly difference between large cap growth and value is under 8 percent while the average difference between the best-and worst-performing sectors is 36 percent. Given this divergence, advisors are increasingly relying on sector and industry strategies to meet the needs of their clients."

Across all types of investment professionals, the use of sector and industry ETFs is most prevalent by private wealth managers, with 92 percent reporting they had some exposure to the sector and/or industry funds; followed by Independent/Regional Broker Dealer advisors (87 percent), National Broker Dealer advisors (86 percent) and Registered Investment Advisors (80 percent). The most important variables these investment professionals consider when choosing a specific sector or industry ETF are liquidity, expense ratio and the fund's holdings.

Looking ahead, 95 percent of financial advisors surveyed report they plan to increase (45 percent) or maintain (50 percent) their use of sector and industry ETFs in the future.

"Advisors' use of sector and industry ETFs has come a long way since the launch of the first sector SPDR ETFs in 1998," said Dave Mazza, head of ETF and Mutual Fund Research at SSGA. "With increasing volatility and uneven market performance intensifying the search for superior, risk-adjusted returns, demand for sector and industry ETFs will remain a core pillar in the industry's growth and development."

For more information on how investment professionals are using sector and industry ETFs, click here to download a copy of The Rising Tide of Sector & Industry Investing .

About the Survey

This research is based on State Street Global Advisors' Survey of Investment Professionals' Sector and Industry Investing Attitudes and Usage, completed in the first quarter of 2016. The study comprised web-based interviews with 419 financial advisors and wealth managers.

About SPDR Exchange Traded Funds

SPDR ETFs are a comprehensive family spanning an array of international and domestic asset classes. SPDR ETFs are managed by SSGA Funds Management, Inc., a registered investment adviser and wholly owned subsidiary of State Street Corporation. The funds provide investors with the flexibility to select investments that are precisely aligned to their investment strategy. Recognized as an industry pioneer, State Street created the first US listed ETF in 1993 (SPDR S&P 500® - Ticker SPY) and has remained on the forefront of responsible innovation, as evidenced by the introduction of many ground-breaking products, including first-to-market launches with gold, international real estate, international fixed income, and sector ETFs. For more information, visit www.spdrs.com.

About State Street Global Advisors

For nearly four decades, State Street Global Advisors has been committed to helping financial professionals and those who rely on them achieve their investment objectives. We partner with institutions and financial professionals to help them reach their goals through a rigorous, research-driven process spanning both active and index disciplines. We take pride in working closely with our clients to develop precise investment strategies, including our pioneering family of SPDR ETFs. With trillions* in assets under management, our scale and global footprint provide unrivaled access to markets and asset classes, and allow us to deliver expert insights and investment solutions.

State Street Global Advisors is the investment management arm of State Street Corporation.

* Assets under management were $2 trillion as of September 30, 2016. AUM reflects approximately $40 billion (as of September 30, 2016) with respect to which State Street Global Markets, LLC (SSGM) serves as marketing agent; SSGM and State Street Global Advisors are affiliated.

Important Information

Investing involves risk including the risk of loss of principal.

ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETF's net asset value. Brokerage commissions will reduce returns. Index-based ETFs are passively managed and seek to track an index of securities. Expenses may cause the ETF's returns to deviate from the returns of the index.

Diversification does not ensure a profit or guarantee against loss.

Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions.

Standard & Poor's, S&P and SPDR are registered trademarks of Standard & Poor's Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation's financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.

Distributor: State Street Global Markets, LLC, member FINRA, SIPC, a wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SPDR ETFs.

ALPS Distributors, Inc., a registered broker-dealer, is distributor for SPDR ® S&P ® 500, SPDR ® S&P ® MidCap 400 and SPDR ® Dow Jones Industrial Average, and all unit investment trusts. ALPS Portfolio Solutions Distributor, Inc. is distributor for Select Sector SPDRs. ALPS Distributors, Inc. and ALPS Portfolio Solutions Distributor, Inc. are not affiliated with State Street Global Markets, LLC.

ALPS Portfolio Solutions Distributor, Inc. is distributor for Select Sector SPDRs. ALPS Portfolio Solutions Distributor, Inc. is not affiliated with State Street Global Markets, LLC.

Before investing, consider the funds' investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus which contains this and other information, call 1-866-787-2257 or visit www.spdrs.com . Read it carefully.

State Street Corporation, One Lincoln Street, Boston, MA 02111-2900

© 2016 State Street Corporation - All Rights Reserved

Not FDIC Insured • No Bank Guarantee • May Lose Value

CORP-2320

10/31/17

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