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SPDR boss Ross: my beef with smart beta
by David Campbell on Oct 28, 2013 at 11:06
Using ‘smart beta’ as a term to describe passive investment strategies risks misleading investors and may actually contribute to mis-selling, global head of the SPDR ETF range Jim Ross has warned.
Ross (pictured), part of the team that launched the first tracker fund 20 years ago and now a senior managing director of the SPDR ranges owner State Street Global Advisors, said that lumping together a huge range of weighted strategies under a single blanket term was not helpful for providers or their clients.
‘There is the potential that you will be offering your clients something that they don’t know how to use,’ said Ross.
‘Depending on how you define the term, it is something that we have offered for between 10, 12 or 15 years.
‘Some would call it “smart beta”, I would call it index weighting. A few years ago my boss asked me why we weren’t doing alternative beta, so I went and asked our head of product development and he pointed out that we had the largest dividend fund in the world.
‘So we went from having nothing in the sector to having $10 billion ($6.17 billion). It’s an interesting space and we are absolutely interested in different ways to look at beta. But we want to be sure that investors understand what they want to use it for.’
Turning to the UK funds industry, Ross said the search for lower cost active alpha as fund groups responded to downward pricing pressure was not a concern, and nor would the group respond by reducing margin or offering more ‘beta plus’ products.
In the US, several years further down the road in the rebalancing of pricing strength between origination and distribution, he admitted the company had accepted lower profitability for market access, however.
At the beginning of the year State Street was among the providers to support a zero-cost fund trading platform launched by broker adviser Charles Schwab. ‘That has had a little effect on our margins – we have a cost-sharing arrangement to compensate them for the commission they lost.
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