BlackRock

A To-Do List for Marketing Smart Beta

Posted by Mike McLaughlin on Sep 12, 2016, in Thoughts , tagged with BlackRock, ETFs, Invesco, smart beta

Sound familiar?

A new category of investment products emerges as an attractive alternative to long-established strategies
Asset managers flood the market with product to appeal to the retail (advisor/investor) market
AUM takes off, with highly-optimistic long-term growth projections

Five years ago this was the storyline for liquid alts. And while the story is far from complete and optimism remains in pockets, the last few years have taken some air out of this high-flying balloon.

^{Source: Financial Times}

The path of liquid alts comes to mind based on the explosion of attention, products, and assets in smart beta. An ETF.com survey showed that 99% of advisors expected to maintain or increase smart beta usage in 2016, and BlackRock recently projected smart beta AUM to nearly quadruple by 2020.

The industry has gotten off to a strong start in marketing smart beta to retail audiences. Education is a central element, and firms have made good progress:

Establishing ‘smart beta’ as a baseline term, then using proprietary terminology to support proprietary offerings
Utilizing similar nomenclature and definitions for key factors (e.g., value, momentum, low volatility, etc.)
Differentiating smart beta strategies in general from traditional active and passive

Of course there is a long way to go with marketing just one of the myriad factors that will impact the long-run success of the category. So what areas represent the next opportunities for improving the retail marketing of smart beta? I see three:

1. Providing Market Context

Once the definition of the underlying components of smart beta are understood, the next step lies in helping advisors and investors understand the context surrounding factor performance. This is an important topic in part because of how the outcomes associated with individual factors vary over time (i.e., market conditions).

^{Source: Invesco PowerShares}

Much in the way we’ve seen asset managers map mutual funds to investor needs and desired outcomes, firms can begin to provide similar context on different factors and factor combinations (and therefore strategies). Even something as high-level as this table from BlackRock gives an advisor or investor a valuable anchor as they learn about smart beta.

^{Source: BlackRock}

The need for context relates directly to the next messaging opportunity – implementation.

2. Addressing Implementation

Where some progress has been made in putting context around the different approaches to smart beta, firms have been less successful in communicating how smart beta should be integrated into existing portfolios (which is actually something often done well on the institutional side). With liquid alts, most firms started with a simple message that referenced:

Improving diversification (via assets not correlated with traditional stocks and bonds)
Targeting a specific (and modest) allocation

A straightforward analog with smart beta is largely missing, and some of the concepts used today are likely too complex for much of the retail market.

^{Source: BlackRock}

Crafting a digestible, clear message on how to apply smart beta will help firms capitalize on the current wave of interest and assets.

3. Clarifying the Brand

I’ve touched on this before so won’t dwell on it here. And while it obviously doesn’t apply to every firm, the many established firms that have recently entered the ETF and smart beta space face a unique challenge in merging this effort with longstanding brand messaging.

As the lines between passive and active investing continue to blur, there’s an opportunity, or more frankly a need, for individual firms to recast how they want to position themselves in the minds of clients. Branding is a long-run consideration, but one that several firms have largely neglected (or deferred) so far.

^{[ banner image via Stephen Dann ]}

Best Blogs of the Week #243

Posted by Anu Heda on Aug 29, 2016, in Best Blogs of the Week , tagged with BlackRock, Invesco, Loomis Sayles

Negative interest rates? It’s been in the news quite frequently, but the Blackrock post here explains the topic better than I’ve seen elsewhere. Along with that post, three others worth highlighting this week as we approach summer’s end.

BlackRock – How do negative interest rates work? – who would buy a negative yielding security? Obviously not investors looking for income. However, there are institutions like some insurance companies and banks who hold government bonds for specific reasons, such as to meet regulatory requirements. These investors need to hold bonds for safety, no matter what the yield is.

BlackRock – Warming up to emerging markets – Within EM equities we prefer countries showing economic improvement or having clear reform catalysts, including India and ASEAN countries.

Loomis Sayles – The Connected Consumer: 3 Key Themes – I believe the future of the automotive industry will be defined by the ‘connected car’ – vehicles as an extension of our lives.

Invesco – What will real estate’s new sector status mean for investors? – Potential benefits include increased visibility, a larger investor base and a reduction in long-term volatility. We will closely monitor the REIT market for relative value opportunities that may arise from index and ETF changes, essentially nonfundamental drivers of performance, over the short term.

Best Blogs of the Week #241

Posted by Anu Heda on Aug 10, 2016, in Best Blogs of the Week , tagged with BlackRock, Russell

The industry’s blog rate continues to slow as the summer temperatures rise. This week had multiple posts on FinTech and we included the most interesting related post, from BlackRock. That along with an interesting examination of the broad U.S. equity market (Russell) round out our best posts.

BlackRock – The expanding role of technology in financial advice – The process will be far more dynamic and interactive. We’ll be sitting in the pockets of our clients, in their phones, and ready to answer questions, all day every day.

Russell – Go where most passive investors don’t: The “left over” 77% of the U.S. stock market – Russell Investments believes that U.S. equities (represented by Russell 1000® Index) are currently overvalued – and that’s been the case for some time.

Best Blogs of the Week #239

Posted by Anu Heda on Jul 25, 2016, in Best Blogs of the Week , tagged with BlackRock, Eaton Vance, MandG

Only one pure best post this week and it touches on the recent fixed income news from Germany.

M & G – Why do people buy negative yielding bonds? – The possibility of selling the asset to someone else at a higher price (a greater fool) is predicated on hoping that having accepted a guaranteed loss of over 50 cents over the course of 10 years, someone else will be willing to accept an even greater guaranteed loss over a shorter time period at some stage in the next 10 years.

M & G Blog Post

There have numerous posts related to post-BREXIT. Without summarizing all of them, here are the two I found compelling.

Best Blogs of the Week (SPECIAL – BREXIT III – FINAL EDITION)

Posted by Anu Heda on Jul 05, 2016, in Best Blogs of the Week , tagged with BlackRock, Franklin Templeton, Invesco

This will be the final issue related to Brexit. Less than one week later, the US equity markets (as measured by the S&P 500) returned to pre-Brexit levels. In fact the S&P 500 index is nearly at its 52-week high (off by 42 points, or 1%). In this issue, we’ll return to our standard format of highlight the best (Brexit) blog posts and not inventorying posts.

BlackRock – Where to find opportunities in a post-Brexit world – The big takeaway for those seeking to buy into market weakness: Be wary of buying notionally cheap assets that face challenges…

Franklin Templeton – Brexit: “I Have Confidence in Confidence Alone” – In my view, a real risk of political impasse and a lack of direction will be a further element of negative confidence.

Franklin Templeton – Brexit: Serious Consequences, but “Not the End of the World” – I expect financials and domestically oriented cyclical stocks to be the hardest-hit areas of the equity market within the United Kingdom and the EU

Invesco – Has the Brexit sell-off created an entry point? – These attributes give the Invesco International Companies Fund team a high degree of confidence in our belief that the UK will enjoy long-term economic success outside of the European Union.

Three quick learnings from following the industry’s BREXIT coverage.

Many firms were caught flat-footed expecting a “Remain” vote and readying nothing substantive by the 23rd June. This reflected very poorly on these firms as their institutional and intermediary clients looked for a point of view and found nothing (or something highly superficial).
Creating a cross-functional internal team (Sales, Marketing, PR) to create an execution plan for something that may not occur is simply not in the DNA for most asset managers. Teams are already resource-constrained and thus shifting 100 team hours from business as usual to a Brexit planning effort is a tough decision to make.
The best Brexit blog posts provide a clear point of view. Messages such as “we’ll not panic” or “we encourage our advisors to plan for risk related to geo-political issues” were few and far between. Instead there was too much news regurgitation.

Brexit BlackRock