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ETF Managed Portfolios Could Be Good Fit for 401(k)s


The nascent group of easy-to-use exchange traded fund manage portfolio strategies could be a good way for 401(k)-type saving plans to reduce costs and potentially augment returns.

Kim Arthur, CEO of Main Management, believes managed ETF solutions might be the way of the future, reports John Wasik for Forbes.

ETF managed portfolios is a quickly growing segment of the separate accounts space that are comprised of a selection of low-cost ETFs to provide a general investment portfolio strategy. A manager, or so-called ETF Strategist, can bundle them for a diversified 401(k) plan.

The 401(k) market is dominated by mutual funds. However, the investment vehicle is costly.

“The expense ratio for mutual funds in retirement plans with under $10 million in total assets typically averages around 1 percent, or $100 for each $10,000 invested,” Arthur said. “Many plan participants fail to appreciate that they’re paying a full percentage point of their invested assets for a portfolio that they have to manage themselves.

The main sticking point in favor of ETFs for 401(k)s is the ability to lower fees. [ETF Growth Themes: Strategists and Managed Portfolios]

“By contrast, a competent ETF asset manager can compile four well-thought-out, age-based portfolios, diversified across an array of asset classes, at a blended cost of about 0.30%,” Arthur added. “That manager might opt to charge a management fee in the range of 0.50%. Together, the all-in cost would amount to 80 basis points, or $80 for each $10,000 invested.”

The ETF Strategist select a group of ETFs to match age-based risk profiles, potentially offering ETF managed portfolios for the young worker, middle-aged investor or those about to retire. [ETF Asset Managers Offer Up Their Own Unique Recipes]

Alternatively, an employer may opt to replace active mutual funds in a 401(k) for ETFs, but investors would have to pick and choose which ETFs would fit their investment horizon.

For more information on 401(k)s, visit our 401(k) category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.