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’Smart beta too complicated and restrictive for most clients’

The proprietor of Leeds-based Klonowski & Co said he had been looking at the rise of so-called ‘smart beta’ index products but considered them to be too complicated and restrictive for most clients.

He said: “Using passives within a portfolio is a good idea for asset allocation, and I do use ETFs where appropriate for a client.

“I don’t think that developing all sorts of clever ‘smart beta’ index structures will benefit most retail clients. They want simplicity, low cost and diversification.

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“I will use ETFs within portfolios when the client cannot get the right index-tracking fund otherwise, for example, if he or she needs exposure to commodities.”

However Mr Klonowski said he would avoid the more esoteric ETF products, especially the synthetic, non-physically-backed products, because “the more you look into them, the more you find the hidden charges and that takes away the value in using a passive fund”.

His comments came as discretionary manager Canaccord Genuity Wealth Management used mid-cap stock ETFs to boost portfolio exposure to the sector.

According to Robert Jukes, the firm’s global strategist, mid-cap equities in the UK were looking more appealing so the team bought the iShares FTSE 250 ETF.