Smart Beta: how B Capital is playing China

The bulk are transparent and do what they say on the tin. There are, however, many exotic ETFs that can be useful to express a tactical theme, for example, but there can be risks that are not clear to all investors. An example is the long-term cost of commodity ETFs when the market is in contango.

The ‘roll’ cost for the manager to buy the longer-dated commodity future while selling the front-end contract can be expensive and eats into the returns of the fund. 

As a professional manager of ETF portfolios for investors, we have an investment process that submits each fund to a series of filters to grade the quality of the ETF and produce the best risk-adjusted investment. If there is a rigorous selection process, there is less risk and more confidence.

What types of ETFs would you rather see more of, or improvements in?

With over 3,000 ETPs representing $2 trillion of assets, it is a market that has grown so expansively that most strategic and tactical investment themes can be expressed through
an ETF. 

The market is competitive and evolving at great pace already, which is good news for investors who increasingly want more transparency, liquidity and control of their portfolios than they have ever had before.

It is important today for professional advisers and their clients to further educate themselves about the benefits of ETFs and to learn what to look out for when making their investment selections, as they are now able to access parts of the global financial markets that were previously inaccessible.

It’s an exciting prospect but comes with a need for discipline and research before making the trade.

Are there any asset classes where you wouldn’t use ETFs?

The filters that would prevent us from selecting an ETF are both quantitative – size, volumes, spreads, for example – and qualitative – looking at whether we know the manager, which exchange, and issuer history, among other factors.