Passives & ETFs

Passive Aggressive

By | 2015-02-05T09:57:06+00:00 February 5th, 2015|Asset Allocation, Asset Classes, Cerno Capital Posts, Cerno Capital Posts, Passives & ETFs|

I recently met Colin. He has the longest unbroken track record in the UK Equity Income sector. We did not talk about his Income fund; instead, we talked about his Blue Chip Equity Fund, which, notwithstanding a long track record has seen assets dwindle as investors joined the passive bandwagon – predominantly through Exchange Traded Funds (ETFs). Colin’s fund will be converted into a UK Rising Dividends Fund. The strategy makes a great deal of sense – focus on businesses with a track record of dividend growth and with the potential to maintain that growth. A set of rules whittle his universe down to a manageable list, then his experience and brain take over. The challenge for Colin is that the passive ferry may have already picked up his potential passengers. The growth in ETF-land is now focused on “Smart Beta”, “Factors” or “Advanced Beta”. The terminology proliferates as quickly as the number of ETFs. domain name search Total assets under management (AUM) in these products exceeds half a trillion dollars. If an active strategy can be defined by a set of rules using publicly available data, an index can be calculated and an ETF can be created to passively [...]

The curious tale of Factor based investment (a cynical take on Smart Beta)

By | 2014-11-13T13:33:01+00:00 November 13th, 2014|Asset Allocation, Cerno Capital Posts, Cerno Capital Posts, Passives & ETFs|

Typing “Smart Beta” into Google yields sixty-four million hits. Close to the top of the list is the headline “Smart Beta – The Investing Buzzword that Won’t – and Needn’t – Die”. For every advocate there is a cynic such as GMO’s James Montier who coined the equation “Smart Beta = Dumb Beta + Smart Marketing”. Montier observes that many of these ETFs seek to capture a premium attributed to one of two factors; Value and Size. So, let’s be clear, most strategies labelled as Smart Beta, are in truth portfolios designed to capture the returns from a particular factor of which Value, Size, Momentum and Quality are the most well-known. Investment strategies targeting one or more of these factors are not new. Wells Fargo’s investment business became a leader in passive equity investment between 1975 and 1990 when it merged with Nikko Investment Advisors and developed factor tilt portfolios that became a staple product of Barclays Global Investors (BGI) which was the business created by the purchase of Wells Fargo Nikko Investment Advisors by Barclays PLC in 1995. BGI spawned iShares and was subsequently subsumed by BlackRock. Meanwhile State Street Global Investors, Goldman Sachs Asset Management and many more [...]