Despite Higher Fees, Here's Why Mixing Actively Managed and Index Funds Could be a Smart Move

Investors do not need to make a choice between actively managed and index funds, but there are other factors to consider. According to E*trade's (ETFC) - Get Report latest StreetWise survey, 61 percent of investors prefer a portfolio that offers both active management and passive management. Rich Messina, senior vice president of investment product management at E*Trade Financial, said a hybrid approach allows investors to carefully consider when to use each strategy, taking into account things like asset class efficiency and liquidity, and overall fees. 'There are certain asset classes where asset management, like large-cap, makes the most sense,' said Messina. 'In other asset classes like international or fixed income an active manager will add alpha, so as you combine the two it's a more effective portfolio management tool to have.' In light of the growing demand for ETFs as part of an overall strategy, E*Trade found that U.S. market indexes and dividend ETFs were by far the most popular among investors. Most notably, baby boomers proved to be more interested than younger generations in dividend ETFs. Meanwhile, millennials are more interested than older investors in bond and commodity ETFs compared to boomers.