“Now with the new economic regime we seem to be entering into, value strategies are coming back into favour so we are seeing a lot of our value smart beta ETFs being on the radar of asset allocators as well as advisers.”
She says: “The second theme is more for long-term and strategic allocation. For example, I think [around] retirement solutions.”
Due diligence
Mr McDermott acknowledges smart beta ETFs can be used in a portfolio in many different ways: as a core holding, as a satellite investment to boost a portfolio, to access asset classes unavailable through active management, for an income boost, for a momentum play – “pretty much for any reason”.
“When you use smart beta in a portfolio, you have to do the same due diligence as you do for an actively managed fund,” he notes. “You need to understand when it will out or underperform. You need to know if it is really efficient, how often it is traded, the costs involved, how the company manages inflows and outflows, etc.”
Where next for smart beta then?
Mr Weithofer suggests exposure to fixed income is one area where smart beta is now proving useful.
He explains: “Fixed income indices traditionally weight towards the most indebted issuers, but the new generation of smart beta fixed income ETFs can take a different approach.
“Last year, for example, we launched an ETF providing quality-weighted exposure to sovereign bonds. Instead of weighting most towards the countries that are more indebted, the index follows a methodology which aims to identify the highest quality issuers and weights most towards them.”
eleanor.duncan@ft.com
