Smart beta ETFs to be repeat outperformer
Smart beta exchange traded funds (ETF) are likely to be repeat outperformers but will also become harder to evaluate as that segment of the ETF market matures according to Morningstar.
In a briefing report released by the research house it stated that while smart beta (titled strategic beta by Morningstar) invested in a series of factors designed to outperform or reduce risk, "some factors are more ‘proven' than others" and will outperform on a consistent basis.
Morningstar said some factors "are well grounded in economic and/or behavioural patterns" and "are associated with real risks, which is why they offer real and ongoing higher returns."
The research house said these factors have been tracked and tested for many years, with factors such as liquidity and value set to continue to offer repeatable performance and warned about less tested factors.
"Some of the newer multi-factor strategies do not have the same academic and behavioural underpinnings," Morningstar stated claiming that "some of these funds track benchmarks that have short track records and were designed for the sole purpose of serving as the basis of the ETF"
Morningstar also stated that while early smart beta funds focused on basic style tilts around value, growth and small caps newer funds have become more complex and are overlaying several factors such as country, sector and style tilts and cautioned is required in assessing these funds.
"As strategic beta funds become more complex so, too, does the process of evaluating them," Morningstar said.
"Investors' due-diligence processes for these funds need to be every bit as rigorous as those they would undertake in scrutinising active managers."
AUTHOR
Jason Spits
Recommended for you
Janus Henderson is actively seeking to partner with private wealth firms in Australia as it looks to expand its number of strategic partnerships, as well as focus on retirement income product development.
Global investment manager First Sentier Investors has launched an umbrella brand to provide greater clarity around its shift to a multi-affiliate asset manager encompassing six investment teams.
Janus Henderson has seen intermediary outflows in the second quarter of US$1.2 billion, although its deal with insurer Guardian means overall net flows are US$46.7 billion.
Infrastructure assets are well-positioned to hedge against global uncertainty and can enhance the diversification of traditional portfolios with their evergreen characteristics, an investment chief believes.
