Online trading platform Bell Direct is warning investors to avoid the "ETF trap", as the move to passive strategies gains substantial pace and inflows reach all-time highs.
Bell Direct chief executive Arnie Selvarajah said that for many investors passive was 'the new black' and represented the broader dramatic shift in customer demand for simplicity and low cost.
"In the sense of accessibility, liquidity and price, it's easy to see why ETFs have become so popular with investors in the current market. However, investors should be warned against blind over-allocation and recognise that not all index-driven products are created equal," Selvarajah said.
"An issue we are now seeing emerge is an overexposure to overtly-similar passive strategies, leaving investors' poorly-diversified and their portfolio performance at risk. For every eight stocks a self-directed investor owns, at least one of these stocks are an ETF if not more.
"For the ill-informed investor, unquestioned allocation to ETFs is a common trap. Attention must be given to the different styles and exposures of various ETF products, and investors should understand that passive alone will not deliver the desired return outcomes," he added.
While Australia continues to lag behind the United States in terms of ETF uptake, passive allocation by local investors show no signs of abating, reaching $30 billion in funds under management last month.
In an attempt to educate and match investor needs to suitable products, Bell Direct have launched an ETF Filter to enable investors to compare performance, fees, asset class, sector, issuer and indirect cost ratio.
Arnie Selvarajah spoke at this years' ETF Forum in Melbourne on the danger signals of low cost access and why humans will always beat the robot.