Analysing the fundamentals of the value factor, for example, tells us that at the moment value as an investment factor is trading at a discount to its benchmark on a long-term basis.
We can also see that the valuation for minimum volatility – another well-known equity factor – is trading at a premium to its benchmark on a long-term basis and has been range-bound for the past few years.
Building up a picture of factor performance provides the basis for asset managers and advisers to potentially create semi-active portfolios of factor exposures, and therefore potentially find an active role in an investment world that is increasingly turning towards index products.
Vincent Denoiseux is ETF head of quantitative strategy at Deutsche Asset Management
EXPERT VIEWs
ETF DEVELOPMENT
Mark Weeks, chief executive at ETF Securities, says:
“Just over 10 years ago, a new ETF would have had an 80 per cent chance of gathering $100m in its first year – a good benchmark for a successful launch. Today that success rate has fallen to 10 per cent, while the number of fund closures has also accelerated over the same period.
“It is often not commercially viable for the big players to create truly niche solutions, so there remains an opportunity for real specialists to succeed in this space. Yet to ensure that the ETF industry continues to democratise investment, it is important ETF providers understand why they are bringing a product to market and what need they are servicing rather than simply providing more of the same under a different brand.”
ACTIVE VS PASSIVE
David Coombs, manager on the Rathbone Multi-Asset Portfolio funds, states:
“There’s no doubt that active management has developed a serious image problem, and the rise of passives has forced it to up its game. Passives have enjoyed ideal conditions since the financial crisis, as broad political consensus and easy money have supported highly correlated markets.
“But the tables are turning towards active management again. Why? Well, the events of 2016 have changed the investment environment for the next decade or more. The Brexit vote, Trump’s victory and more polarised party manifestos in the UK have closed a period of political harmony and created new challenges for markets. In addition, emerging demographic trends and disruptive technologies are rapidly blotting the landscape. When it comes to asset allocation within multi-asset portfolios, therefore, we believe active managers are more likely to protect and grow capital.
