Transamerica teams with BlackRock to offer smart-beta ETFs in variable annuity portfolios

Offerings meant to help counter a trend toward passive index strategies.

Transamerica, the U.S. insurer owned by Aegon NV, is turning to BlackRock Inc. to offer variable annuity portfolios comprising exchange-traded funds that weigh factors other than a stock’s market capitalization.

The so-called smart-beta ETFs from BlackRock, the world’s largest money manager, can account for value, quality, momentum and size when picking securities, the annuity provider said Wednesday in a statement. The three new investment options will be sub-advised by BlackRock, while Transamerica is the investment manager.

Insurers have been providing more complex investment options to win both institutional and retail clients, and to be able to charge higher fees. The offerings help counter a trend toward passive index strategies in which companies compete by offering the lowest fees, squeezing profit margins. Prudential Financial Inc., the second-largest U.S. life insurer, introduced a product last year to allow retail investors to bet on strategies favored by hedge funds.

(Related read: Smart beta continues to confound advisers)

“These are new solutions that present the opportunity to have an interest in equity portfolios possessing a high degree of investment rationale,” Tom Wald, Transamerica Asset Management’s chief investment officer, said in the statement. “We are excited to be offering these variable annuity investment options.”

MASSMUTUAL, PRINCIPAL

Transamerica is seeking to revive growth in variable annuity sales after falling to seventh in the U.S. last year from fifth in 2014, according to data from trade group Limra. The company lost market share in 2015 to Prudential and Axa SA. Transamerica agreed in November to sell a distribution network of as many as 1,100 advisers to John Hancock Financial Network, saying that the buyer could better support the business.

Insurers have been pushing into the ETF market, which has grown to more than $2 trillion in assets. Massachusetts Mutual Life Insurance Co.’s OppenheimerFunds agreed in September to acquire VTL Associates for smart-beta ETFs, while Principal Financial Group Inc. hired Paul Kim from Pacific Investment Management Co. last year for such funds.

“As insurers continue to seek new investment options, we’re committed to delivering next-generation solutions,” Raman Suri, head of iShares Insurance at BlackRock, said in the statement.