Axioma backs ETFs that track volatility
Investors should forget the wrapper and concentrate on ‘factors’, rather than following the market cap of an exchange-traded product, Axioma has said.
Ian Webster, managing director Europe, for the specialist ETP index provider said too many investors and providers focused on creating exchange-traded funds that simply tracked the share prices of listed companies.
He said it was more important for investors and their advisers to consider ‘factor-based’ strategies to help diversify and shore up overall investment portfolios.
Mr Webster said: “It’s not about size or even about growth or value stocks. This is the way markets used to work. Now it’s also about volatility, momentum and beta. Everyone is talking about the effect that market volatility is having on their portfolios, so why not have a factor-based ETF that can track high and low volatility stocks? Institutional investors are starting to adopt a strategy with their ETF whereby they can rotate from a high-volatility ETF to a low-volatility ETF depending on the market environment.
“This is all about risk management, not just about chasing returns or limiting costs. It’s about constructing portfolios that can minimise the effect of ‘unintended bets’.”
Mark Ireland, director of London-based Barton Financial Planning, said: “Until you understand what’s under the bonnet you shouldn’t recommend it. This sounds like it would tend to be suitable only for a more sophisticated client or maybe for discretionary fund managers. You’d have to be aware of the manner in which the ETF is holding its client funds with the concerns that already exist around ETFs, such as who is the counterparty and what is the risk to capital.”