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Smart beta roundtable: where next for exchange traded funds?

by Emma Dunkley on Jul 06, 2012 at 11:53

Edward Allen, Thurleigh Investment Managers: We have used ETFs and index funds as a core part of our portfolios for the last decade and we’ve seen the variety explode from really nothing to the huge different groups that we have today, of which smart beta is one.

Andrew Whiteley, investment director, Provisio: We built our own range of modern portfolios using predominantly ETFs about four years ago.

Parker: Can the indices we are most familiar with do the job in terms of portfolio construction? How far do people think these indices go in providing the right sort of exposure, the right building blocks?

Dan Draper, global head of ETFs at Credit Suisse: Looking over a couple of decades, some recent research shows that indexing in terms of ETF funds under management and mutual funds, as well as trading volume, has just grown so much.

But you do see rising correlations. You just don’t get the diversification of the S&P 500 that you did probably 10 years ago.

So how can you better get lower volatility or can you maybe get some form of risk premium from smaller companies or maybe value? How can you do it in a smarter way and in a systematic way?

We’re looking at long-term trends, but maybe with short-term conditions, we're also helping the fund managers try to find this free lunch for diversification.

Emma Dunkley, Citywire: Are there some asset classes where you don’t think traditional ETFs or beta products are efficient? For example, some wealth managers have said they do not like passive vehicles to access fixed income. Do you opt to use active managers in this space instead?

Murphy: If we were creating a proposition for an intermediary who wanted to use primarily passives or ETFs within the portfolios, how would we actually replicate our asset allocation to strategic funds?

The way in which we would have to do that is to actually use ETFs and then look to create some sort of overlay where we had an asset allocation of that particular asset class ourselves. We’ve brought in some ETFs to do that or we actually prepare it within the team.

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