Thoughts

Two Thoughts on Smart (or Strategic) Beta

Posted by Mike McLaughlin on Nov 17, 2015, in Thoughts , tagged with , , , ,

A few weeks back I commented in a story on OppenheimerFunds’ move into the smart (or strategic) beta realm. Let’s be generous and say that my quote was among the more generic in the story. So I thought I’d take a second to lay out two thoughts based on points within the article.

1. Smart beta WILL be successful

The parade of managers lining up to launch smart beta strategies is a pretty good indication, despite some mixed results in asset gathering. The simple fact though is that there is a sizeable gap between the philosophies of traditional active and passive strategies. There is no reason that strategies that include elements of both shouldn’t be successful as well. The idea that these strategies are solely a marketing gimmick is disingenuous.

If the asset management industry is a (somewhat uneven) barbell with passive at one end and active at the other, I believe the eventual (long-term) outcome is a more evenly-distributed pipe where the middle has significant or even as much traction as the endpoints.

2. Smart beta should align itself with active

To some degree I’ve always felt that the “passive” label for investments is a misnomer. These are still purposeful strategies designed by human beings based on their ideas. So while the day-to-day decision-making on holdings are removed from a portfolio manager, the underlying guidelines remain very much human. These are not robotic strategies divorced from the thoughts of people.

This is even more evident with smart beta strategies, which exist wholly because people think they can improve upon (or at least offer alternatives to) traditional passive. Many smart beta managers regret the prevalence of the word ‘beta’ in the category name; even so, few push to align these strategies explicitly with active. That should (and I believe will) happen more, especially since many of the market entrants are traditional active players. If nothing else, it’s a more accurate way to present what these strategies are.

[ Image courtesy of ValueWalk ]

Nothing New Under the (Visual) Sun?

Posted by Mike McLaughlin on Jul 23, 2015, in Thoughts , tagged with , ,

We recently completed a project on asset managers’ visual branding strategies: the way a firm’s logo, color palette, and imagery tells and reinforces the value proposition (or, in some cases, fails to do so).

Among the firms we focused on were AB and Deutsche Asset and Wealth Management. Why? AB’s massive rebrand from January 2015 represents the type of overhaul we simply don’t often see in the industry. And few firms talk as much and as publicly about their visual brand as Deutsche Bank.  … [read more]

Are We Overrating Millennials?

Posted by Mike McLaughlin on Jun 23, 2015, in Thoughts , tagged with ,

Millennials are a hot topic in the industry. We have done multiple millennial-centric projects this year, and every day seems to bring another conversation focused on the same set of questions:

  • How can we help millennials overcome their conservative, fearful attitudes about investing?
  • How should we leverage their (self-stated) interest in socially-responsible (ESG) investments?
  • And most importantly, how do we make sure we capitalize on the $41 trillion (or is it $59 trillion?) in wealth they will inherit over the decades to come?

This has made for interesting discussion and interesting work. Yet at the same time I can’t shake the feeling that the importance of millennials to asset managers over the next 10 years is being overrated.  … [read more]

A Different Way to Filter Mutual Funds Online

Posted by Anu Heda on Jun 23, 2015, in Thoughts

Many of our digital strategy engagements include a competitive analysis. Though we comprehensively cover the best practices for all components of asset managers’ Web sites, we often linger on mutual fund filtering. By filtering, we mean the interaction between user (typically financial advisor) and Web site to show a small set of relevant funds. Any manager with more than fifteen funds (less than that, you could just show a list) has to consider filtering. Clients often point to the J.P. Morgan filter as a favored practice.

I tend to agree, especially with the quick access to 4 & 5 star funds. Yet, I’ve been mulling a different approach to filtering.

The approach I’m thinking of is more akin to Starbucks coffee bean sales. As best I can tell, Starbucks has over 34 unique coffees. Starbucks walks you through a 3-question process to understand preference. After answering the questions, you receive a recommended coffee (for me it’s the Veranda Blend) with a few secondary recommendations. That’s similar to the emerging robo-advisors’ approach from companies likeBetterment and Personal Capital. The robo-advisors use 5 or 6 questions, and after answering all them you receive an asset allocation model. What if the approach more closely mimicked the Starbucks coffee finder or robo-advisor asset allocation analyzer?  This sequential question approach has at least three advantages:

  1. Simple and straightforward
  2. Responds well on all devices (often those little filter buttons typical to asset management Web sites are difficult to toggle on my phone)
  3. Great analytics related to fund (broadly asset class) interest

These advantages cost internal time and resources. Most likely a cross-functional team (Marketing, Product, and Sales) needs to convene to develop/scrutinize the questions as well as develop the fund mapping. Given the potential benefits, this seems like an approach worth considering.

Advancing Product to Product Sharing

Posted by Anu Heda on Jun 17, 2015, in Thoughts

We spend a fair amount of time reviewing industry Web sites and investigating specific features. Somewhat nerdy, I know, yet after 15 minutes of poking around, I always come away with a strong opinion or two. Last week I noticed that American Funds integrated multiple products directly into fund profiles. And not via some right-hand rail “See these funds” section. No, right into a risk-return chart!

Imagine you’re a financial advisor reviewing the data on The Growth Fund of America today (which I imagine thousands of FAs are actually doing) and you scroll down to the “Volatility & Return” section. You’ll see the chart below. The small grey circles represent other mutual funds. So for an FA seeking a fund with a different risk/return profile, there’s an opportunity (in-line with Growth Fund of America) to fine one. It would be fantastic if a mouseover-plus-click moved the FA over to the highlighted fund. Nonetheless, this is an innovative technique to display fund information relative to other American Funds’ mutual funds.