Ratings agency Morningstar has launched a strategic beta exchange-traded product classification system to help investors better identify, compare and analyse strategic beta investment products.
Ben Johnson, director of manager research for passive strategies at Morningstar, said the new system will help investors understand their options and make more informed investing decisions.
He said: “Because strategic beta products exhibit a variety of investment styles, the classification system can help investors compare similar strategies and evaluate investments within the context of their traditional category.”
The launch coincided with the publication of Morningstar’s 62-page report entitled A Global Guide to Strategic Beta Exchange-Traded Products, which says that technological advances since the 1970s have enabled more asset managers to create investment vehicles such as exchange-traded products and deliver them at low cost.
The report looks at trends in asset growth, asset flows, product development and fees by region. It also assesses the origins of strategic beta and the types of risk that managers seek to control using such strategies.
The report says: “Since the first index fund was launched in 1975, the portion of US mutual fund and ETP assets accounted for by index-tracking products has grown from nothing to nearly 30 per cent today.”
Strategic beta is a way of tracking indices to provide a set of returns that will vary from the usual market-cap weighted indices. For example, the FTSE 100 is a market-cap weighted index, but if someone wanted to track companies by dividend or risk characteristics, the index could be structured to avoid a market-cap weighted bias.
Key findings
■ As at 30 June, Morningstar identified 673 strategic beta ETPs in its database, representing $396bn in assets worldwide
■ Strategic beta ETPs account for 19 per cent of US ETP assets, 56 per cent of European ETP assets and just 1.5 per cent of ETP assets in the Asia-Pacific region
■ Dividend screened/weighted ETPs have the most assets among strategic beta investment products in every region
■ Strategic beta ETPs tend to be lower-cost than their comparable actively managed peers
Adviser view
In October 2013, consultancy Towers Watson published a 12-page study, Understanding Smart Beta, about how investors are seeking alternative methods of passive investing. At the time, Duncan Glassey, principal of Edinburgh-based Wealthflow, said: “While I like using this sort of additional beta and think you can get a better return from it, I get nervous when people develop sexy solutions and say, ‘This is the next best thing’.”
