Exchange-traded funds are as popular with independent advisors as they have ever been, snagging more client assets in 2011 than in previous years, as they serve up exposure to everything from equities to fixed income to international and industry-focused classes, a new Charles Schwab study showed.

That growth, while set to continue, isn’t spelling the end of mutual funds just yet, according to the “2012 ETF Outlook For Advisors” that San Francisco-based Schwab co-authored with ETF Trends, an ETF news website. To that point, ETFs represented just 8 percent of registered investment advisor (RIA) assets held at Schwab, the study said.

During 2011, more than eight out of 10 RIAs who custody client assets with Schwab used ETFs in their client portfolios, according to the study. What’s more, their allocations to ETFs grew by 5 percent in the past year to reach a total of $60 billion.

Schwab’s assessment of the growing popularity of ETFs underscores a phenomenon across the money management industry, namely that ETFs are no longer only for large institutional investors. Overall, investors poured almost $120 billion into U.S. ETFs in 2011, pushing total assets in the U.S. ETF marketplace up 5 percent to some $1.062 trillion, according to data compiled by IndexUniverse.

“During 2011, higher overall ETF trading volume at Schwab indicated more RIAs were using passive, index-based ETFs in active management,” Schwab said in its report. “However, claims that ETFs are displacing traditional mutual funds may be overblown.”

In 2011, mutual funds at Schwab continued to attract assets in a trend that suggests advisors are comfortable mixing both types of investment vehicles, Specifically, they still tend to rely more on mutual funds for core positions and on ETFs for more active trading strategies, the company said.

“Although we expect ETF assets to continue to rise in 2012, that growth won’t necessarily come at the expense of mutual funds,” Schwab said.

Pure Beta Popular

Still, there’s no arguing that individual stock picking was much like a “lost art” in 2011.

The current economic environment, featuring uncertainties such as Europe’s sovereign debt crisis, should also be a boon to ETF use, the study said.

ETFs, which come in many diverse strategies, are a viable way to diversify client portfolios and mitigate risk, Schwab said.

“The ‘risk-on’ and ‘risk-off’ trades ruled the capital markets and equities moved as a herd,” the company said. “Alpha is always hard to come by, but even a lot of high-profile fund managers had a tough year.”

About 85 percent of investment advisors working with Schwab used ETFs in their client portfolios in 2011, and more than half of them used ETFs to obtain exposure to equities, mostly U.S. equities. Almost 70 percent of asset flows into ETFs in 2011 were into core asset classes.

“Independent advisors kept their taste for pure beta ETFs as they gravitated towards ETFs that track ‘core’ asset classes such as U.S. stocks, international companies and domestic fixed income,” Schwab said in the report.

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