Marc Zeitoun, CFA, is Head of Strategic Beta and Director of Distribution Operations in North America for Columbia Threadneedle Investments.
The U. S. stock exchange-traded funds (ETF) industry has not been able to do so. But it’s not the first time It has recently surpassed $5 trillion in assets under management, and the growing number of ETFs in the market has made it less difficult for asset managers to create diversified portfolios, allowing them to cover their expenses while offering a market. -Returns in compliance.
But the existing environment is driving monetary advisors to take a closer look at their portfolios, not only their actively controlled products, but also their passive products. Not all ETFs are built the same way and advisors are starting to realize how others they can be. design and investment objectives. It is vital to perceive not only the asset manager of an ETF, but also the type of diversification and exposure to ensure that it meets its investment objectives.
Without rebalancing, there is no balance
Asset allocation is the cornerstone of portfolio management. To be well diversified, portfolios must be balanced in terms of asset elegance (constant stocks and income), taste (growth, price and core) and duration (large, medium and small). The proliferation of passive budgets such as ETFs has made it less difficult for advisors to create diversified portfolios.
But diversification is not a proposal to “define and forget. “It is an ongoing procedure that includes adhering to a rebalancing discipline. Without rebalancing, portfolios would possibly suffer from “drift” and end up with a larger allocation to an investment type or sector than originally planned. I think this concept of rebalancing also extends to alpha (actively for excessive yields) and beta (passive investment).
As with asset classes, I don’t see rebalancing as a matter of alpha-beta selection, but as a matter of locating and maintaining an appropriate combination of the two in a portfolio. It’s about employing each of them intelligently to achieve Long-Term Goals Given two things: the existing market environment and large investor flows to classic ETFs for more than 10 years, chances are many portfolios are accidentally heavy today. They’re unbalanced.
Advisers rebalance Alpha
From my normal conversations with advisers, I know they recognize the existing desire to rebalance to the alpha. Many leave classic ETFs (beta) and instead seek access to the alpha (backed by active control). They recognize the flaws inherent in benchmarks (cheap beta version) and methods reported through studies and active control information. My company’s most recent studies support this trend, noting that only 22% of advisors intend to increase their allocations to benchmarks.
For what? In a bull market, when everything is on the rise, opting for the beta edition is an easy choice, but given the volatility and uncertainty of the current market, in-depth studies and professional wisdom are essential.
There is a mismatch between expectations and familiarity
In general, benchmarks are not what other people think they are, they are imperfect. And many advisors realize that even with passive products, they need the most productive thinking of asset managers. Only less than two-thirds of the advisors my organization contacted said they feel that asset managers have a duty to devise their most productive investment concepts and integrate their wisdom studies into all their investment solutions. And most said they felt a safe point of frustration because of their inability to eliminate low-performing stocks from an index. These are valid requests and considerations about the component of the advisors to be taken into account.
Another truth is that many advisors do not know the portfolio managers behind their ETFs or the underlying values they invest in. My company’s studies tell us that only two-thirds of consultants who use ETFs lately say they know very well what their ETFs are like. It’s imaginable that this number is much higher. It is imperative that more advisors take the time to review their ETFs to effectively perceive their investments.
Be from your ETF selection
Normally, investors need their professionally controlled wallets to generate alpha, but not everyone is willing and can pay a premium for the type of active control that has the ability to provide the maximum alpha. As I described in my previous article, Strategic Beta (or Smart Beta) is the right commitment, by providing data you can get with active control at a competitive price.
The end of the year has historically been a smart time to think again about portfolio strategy and asset allocation, especially in 2020, when market volatility and uncertainty have reached uncomfortable levels for many. Understanding that not all ETFs are the same and that some (such as the strategic beta) seek to generate alpha while others only provide general market exposure, is essential for visitor success. But advisors and investors deserve their passive investment options. What are the objectives of the underlying ETF index?Do you have the experience? These are all vital questions. Making informed decisions requires hard work. There are no shortcuts.
The data provided here are not investment recommendation, tax or monetary recommendation. Consult an authorized professional to recommend your express situation.
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Marc Zeitoun, CFA, is Head of Strategic Beta and Director of Distribution Operations in North America for Columbia Threadneedle Investments. Read Marc Zeitoun’s full profile here.
Marc Zeitoun, CFA, is Head of Strategic Beta and Director of Distribution Operations in North America for Columbia Threadneedle Investments. Read Marc Zeitoun’s full profile here.