Smart beta could give funds an entry into ETF market

Participants at the Inside ETFs conference in Hollywood, Fla., said smart beta could provide new opportunities for some funds

Jan 24, 2017 @ 1:30 pm

By John Waggoner

More than 2,200 people met at the Inside ETFs conference in Hollywood, Fla., this week, and it was all about product — smart beta product, specifically.

The record attendance follows record flows to ETFs in 2016, with more than $280 billion in new money flooding into ETFs, smashing all previous annual records. And even as record amounts of money flooded into ETFs, more than $186 billion flew out of traditional mutual funds, creating a net one-year swing of $471 billion.

"ETFs are no longer the alternative investment choice," said Matt Hougan, CEO of Inside ETFs. "They are now the number one most recommended product by financial advisers, surpassing mutual funds, closed-end-funds, SMAs and cash. Since the financial crisis, they've brought in nearly $1.5 trillion in net new money, even as mutual funds have lost money. ETFs have won. Period."

For funds who delayed entry into the ETF market, smart beta is an appealing way to gain a toehold, participants said. “From a business perspective, smart beta is a good way for firms that are active managers to step into the ETF industry,” said Michael Iachini, head of manager research at Charles Schwab Investment Advisory. “Mutual funds are not growing. ETFs are growing.”

Conference programs aimed at advisers and providers alike, with topics ranging from “How to Launch An ETF — a step-by-step guide,” to “ETF exit strategies — a conversation with a leading ETF Investment Banker."

For some companies, the conference was a perfect time to introduce new ETFs. Victory Capital, for example, rolled out the VictoryShares ETF platform, which features its 11 existing ETFs, as well as six new ETFs that track indexes developed in partnership with Nasdaq.

For nearly all the attendees, rules and regulations were a topic of big concern. And, thanks to the new administration, those rules and regulations, particularly the Department of Labor fiduciary rules, were in doubt. “It's an interesting, cumbersome rule, and we're all looking forward to its delay,” said Dalia Blass, counsel, investment management practice, at Ropes & Gray.

DOL or no DOL, there's no getting away from the fiduciary standard, said Elizabeth Kashner, director of ETF Research at FactSet. “Dollars are marching in the direction of funds that put money into investors' pockets and less in advisers' pockets.”

The most interesting trend: The realization that as smart beta products get more complex and specialized, they start to look increasingly like actively managed funds. “Multi-factor funds are almost back to the active managers' black box,” said Michael Sapir, CEO of ProFunds Advisers. And, he notes, few multi-factor funds have five-year track records.

Other companies say that active managers provide good insights for new multi-factor funds. “Rather than create backtested funds, we look at what successful active managers have done that's unique,” said Marc Zeitoun, Head of Strategic Beta at Columbia Threadneedle. One interesting finding: ESG strategies often boosted performance.

“Introducing ESG as a factor decreased risk,” Mr. Zeitoun said. “Well-run companies tend to do well — they're diverse, they have a soul.”


What do you think?

View comments

Recommended for you

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Featured video


Surprises when reporting on Morningstar

Assistant managing editor Susan Kelly speaks with senior columnist John Waggoner about the interesting discoveries he found in speaking with the analytics giant.

Latest news & opinion

Morningstar evolving well beyond its origins analyzing mutual funds

Led by CEO Kunal Kapoor, firm is moving way past ratings — and financial advisers are paying close attention.

Focus Financial IPO could be a sell signal for RIAs

The $100 million stock offering will fine-tune RIA valuations.

Piwowar defends SEC's best-interest rule

SEC commissioner says the Department of Labor rule set up an 'unworkable, impossible set of standards for people to comply with.'

RIA in a Box acquired by private equity firm Aquiline Capital

New owners plan more growth for the software service provider.

IBDs with the most female reps

Here are the 10 independent-broker dealers that have the most female reps.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print