Merrill Lynch Wealth Management has set out plans to provide research coverage for all ETFs on its platform, in a move that mirrors its approach to mutual funds.
The wirehouse is close to providing total analyst coverage of every one of the 1,800 mutual funds on its platform and is now looking to achieve the same thing with ETFs.
Back in 2016 the firm announced plans to cut its platform of 3,500 funds by 40%, with those remaining covered by either Merrill’s CIO home office team or Morningstar’s Analyst team.
By the end of the first quarter of this year the wirehouse will have moved from a platform of 3,500 funds with 500 covered by gatekeepers, to offering advisors 1,800 funds, all of which have been assessed by a professional buyer.
Over 2018 it will take the same approach to ETFs. It has not yet been decided what Morningstar’s role will be in the process. As a result of the way ETFs can be monitored, there is less likely to be a significant reduction in numbers, as was seen with the mutual fund rationalization.
‘With ETFs, quantitative coverage with an analyst overlay is an option for passive, where we don’t believe that to be the case in the active space. This provides us the flexibility to keep a larger number of products on the platform, but we’ll see as we go along if we feel there is any rationalization that needs to take place,’ said Sandy Bolton, managing director and head of investment products in the investment solutions group at Merrill Lynch.
‘What Anna’s team is working on is an ETF quantitative coverage model. It will regularly monitor liquidity, tracking error and cost for passive products. Our aim is for our advisors to have access to the highest quality investment products across all platforms, in both investment advisory and brokerage.’
There are currently 1,284 ETFs on the Merrill Lynch platform, of which 210 are covered by Snider’s team, with 50 of these making it onto the team’s high conviction list. The 210 ETFs covered by the home office team represent 88% of assets in these vehicles on the Merrill platform.
Snider (pictured above) said her team was looking at the whole gamut of ETFs.
‘We are analyzing our approach to coverage of different types of ETFs. We’ve started not just looking at ETFs as a vehicle type, but basing our review on the underlying investment approach,’ she said.
‘So [we started] considering active ETFs the same [way] we would an active mutual fund or SMA versus how we would look at a passive ETF. We have begun to differentiate the coverage model. Obviously, it’s a wrapper that is used for a lot of different types of investment approaches.’
Smart beta and ESG
This time last year Snider and her team were conducting a research project into smart beta funds. A resulting white paper will be published this year and the firm is planning to add some multi-factor strategies to the platform.
Other ETFs to make it onto the firm’s featured strategies list over the last year include those focused on ESG.
Snider, who is a strong advocate for this style of investing, said – away from ETFs - she was also looking to add private market ESG strategies.
‘We’ve added in the past six months a handful of ETFs to our featured strategies list because I think some of the ETF products coming out now are quite good,' she said. ‘And our focus this year, in addition to incrementally adding public market strategies, is on private markets, so private equity and debt, solutions that are very high impact.’
‘We are looking at a few different themes that we think our clients have interest or demand in, on both the environment and social impact side.’