News Mentions & Press Releases
Investors continue to focus on factor investing as more ETF issuers launch single and multi-factor ETFs that target risk premiums through rules-based indexing. Multi-factor ETFs are particularly popular as advisors evaluate the merits of using them in place of traditional active management.
Despite the promise of combining multiple factors into a single portfolio exposure, many of these indices (and their ETF counterparts) are constructed differently and deliver their promises in varied ways. This can lead to questions during the due diligence process, including:
• How much exposure results from each factor being targeted in the portfolio?
• How consistent is the construction of these portfolios with the typical behavior of an active manager?
To answer these questions, we’ll review the current index construction methods for multi-factor ETFs to identify similarities and differences. We will also derive an alternative construction approach based on Bayesian statistics to capture how active managers incorporate factors into their decision-making. Finally, we will compare hypothetical portfolios based on each construction method to compare and contrast their risk and return properties.
“Historically, that’s not a good starting point for future long-term market returns. Granted that was exactly the same situation as a year ago, but nonetheless, that doesn’t change the fact that historically higher valuations eventually translate into lower long-term returns,” Vanneman said.
“Corporate earnings growth has been great, about 20% year-over-year, and tax reform might help short-term, but earnings growth is already high and appears to be toppy,” he said. “Typically, the best stock market returns are when earnings growth is improving from low levels. That’s not where we are currently at in the cycle.”
CLS, which manages more than $8.5 billion, uses exchange traded funds to build portfolios for its clients. Prior to joining CLS in 2012, Vanneman was chief investment officer at Kobren Insight Management and a senior analyst at Fidelity Management & Research in Boston.
One of the big three RIA custodians is looking for asset managers to add to its new platform for model portfolios. The MFWire brokethe news back in February 2017 that TD Ameritrade Institutional was working on the platform, and since its release in October 2017, Model Market Center currently has more than 1,000 independent RIA users.
Fast forward 11 months, TD is officially launching Model Market Center, a technology platform for TD-affiliated RIAs that fuses the rebalancing software iRebal and trading platform Veo with readily available third party investment models.
International markets are having a standout year and finally outperforming the U.S. market for the first time since the 2008 financial crisis — a long-overdue reversal. But, that shouldn’t be surprising since markets are cyclical in nature (see chart below). We know that the U.S. has been trading at historically high valuations, which are traditionally accompanied by below-average future returns. So, now the question becomes: Have international market valuations caught up?
ETF.com and Inside ETFs are pleased to announce the finalists for the 2017 ETF. com awards. These annual awards are designed to recognize the people, companies and products driving the ETF industry forward and delivering new value to investors.
Winners in each category will be announced at the ETF.com Awards Dinner, taking place March 22, 2018, at Chelsea Piers, Pier 61, in New York. Winners will also be announced on the ETF.com website on March 23, 2017, and in the April 2018 issue of ETF Report. For information on attending the dinner, please email support@insideetfs.com.
Last year was a great year for global markets, but in relative performance terms, the average ETF surprisingly underperformed its peers if you consider data for all ETFs from every asset class against Morningstar-defined peer groups, which include mutual funds and ETFs.
However, the Morningstar numbers measure ETF performance on an equal-weighted basis. On an asset-weighted basis, accounting for larger funds in which more investors were invested in, ETFs outperformed.
There are two reasons behind the outperformance of larger ETFs. First, larger ETFs had lower costs—by about 33 basis points on average. That’s a good head start.
TD Ameritrade Institutional has gone live with its new Model Market Center, a suite of model portfolios available on its iRebal platform, initially announced at last year’s LINC conference. Over 1,000 registered investment advisors who use iRebal have signed on to the marketplace since its soft launch in late October. The Model Market Center, which is free to registered advice advisors, currently has eight different model providers and 62 models to choose from.
The Model Market Center allows RIAs to pull from a “supermarket” of third-party model portfolios while still retaining trading discretion over the accounts. Traditional turnkey asset management platforms, known as TAMPs, take full discretion of investment management and charge overlay fees.
“Advisors had a philosophical shift a few years ago, where they stopped trying to compete on performance,” said Danielle Fava, director of product strategy and development at TD Ameritrade Institutional. “So although [RIAs] don’t talk about that being in their value proposition anymore, no one ever gave them a low-cost or no-cost tool to outsource investment management.
ARE WE STUCK? OR DO WE HAVE A BLIND SPOT?
Gender inequality among the ranks of U.S. financial advisers is nothing new. Yet progress toward narrowing the gap is glacial. If anything, the numbers indicate that inequality is growing, which is a path the industry cannot afford in today’s dynamic landscape of advice.
It is hard to accept that the numbers reflect a capabilities gap between men and women, especially given that women are outpacing men when it comes to advanced education. Something besides capability must be at work perpetuating the status quo. And it is our collective responsibility today to understand what is truly holding the industry back — and more important, how to create serious change.
This study — “Women in Advice: Inspiring the Next Generation of Financial Advisers” — does not endorse special treatment for women seeking a career in financial advice. Quite the contrary. It urges that we adopt a more inclusive approach to solving the problem. We need men and women at the table with shared ownership because this is not a women’s issue, it is a business imperative. In a tight labor market, true equity is a competitive edge.
Make it two in a row for the former stockbroker who is now a business professor at the University of Nebraska at Omaha.
For the second straight year, George Morgan has won the annual Omaha World-Herald equity challenge, having made the most accurate forecast for the 2017 closing of the Standard & Poor’s 500, beating out a slate of competitors that includes the area’s top money managers and wealth advisers.
Before 2017 started, Morgan forecast to The World-Herald (in a standard questionnaire the newspaper uses for all respondents queried for the predictions) the S&P would close 2017 at 2,610. That was within 64 points of the actual closing of 2,674, and the most bullish year-end prediction among the 10 respondents. Morgan’s nearest rivals for the top spot missed the S&P’s 2017 close by almost 200 points.
For 2018, Morgan expects another banner year for U.S. stocks. He predicts the S&P will rise 16 percent from its 2017 close to finish 2018 at 3,105. Morgan’s is again the highest forecast among the eight respondents, who are either experienced college finance professors or portfolio managers or research directors at area wealth managers. Three other respondents predict the index will rise by more than 10 percent, while two others expect around 3 percent or worse.
Now that we’ve considered how cognition and biodata play their respective roles influencing investors, it’s time to look at the third and perhaps most challenging behavioral element — individual factors. To date, most of the work done in the arena of behavioral investing has centered on observable characteristics (biodata) and behaviors themselves (cognitive biases). However, the predictive ability of these metrics is limited by their observable nature. The field of behavioral finance is currently missing an understanding of the internal, core characteristics of people who interact with these observablecharacteristics, to better predict how people make decisions about finances and investments. These characteristics are best described as personality traits, emotional tendencies or individual motivators.
Personality
The two primary personality models that have been investigated in behavioral finance are the Big Five personality traits and, more recently, the Myers-Briggs model. The Big Five personality traits are:
- Openness
- Agreeableness
- Conscientiousness
- Extraversion
- Neuroticism