Actively Managed ETFs Flourish03.04.2014
Actively managed investment strategies are being deployed in ETFs in an attempt to outperform benchmarks.
London-based Man Group, through its AHL/MSS subsidiary, manages three ETFs that track active strategies.
“We don’t use ETFs per se in the portfolio,” said Sam Radnor, portfolio manager at AHL/MSS. “As part of the offering we have in AHL/MSS, which is the quantitative arm of Man Group, we provide various long-only systematic equity products. We run several strategies and managed accounts, and more recently in 2011 entered the ETF space with European and Asia strategies.”
In the United States, Invesco PowerShares has launched a number of ETFs under its SmartBeta brand, most recently an international version of its PowerShares Buyback Achievers Portfolio (PKW), which has seen $2.2 billion inflows during the past 12 months.
“Smart beta is in the DNA that Invesco PowerShares was founded on,” said Joe Becker, senior product strategist at Invesco PowerShares.” The term, smart beta, is consistent with that idea, and we believe the ETF is a powerful vehicle to deliver smart beta strategies.”
Original ETFs listed tracked cap-weighted benchmarks, and the founders of Invesco PowerShares believed that the indexing could be done better; it could use indexes that were built more for investing rather than just measuring the market.
“Smart beta refers to this type of indexing. Ordinary beta is a statistical term, which is a measure of market sensitivity,’ said Becker. “People use it more broadly to mean getting full exposure to the opportunity set represented by a given index. Smart beta is different in that instead of weighting by market cap, it weights by a particular factor like volatility, and will select stocks by a particular factor, like buybacks, rather than by market cap. We are looking to break the link between a stock’s weight in the index and its price, and looking to generate additional performance, whether reduced volatility or enhanced returns over a cap-weighted benchmark. “
Founded in 2011 and merging with AHL in 2013, Man Systematic Strategies (MSS) builds systematic strategies, including a long-only equity strategy based on the analysis and evaluation of what it believes are the most compelling broker ideas.
“We take high conviction broker recommendations from what we view as the best brokers in their regions in order to build liquid diversified portfolios,” said Radnor. “These brokers are providing us fundamental ideas based on published research that have 2-3 month investment horizons. We don’t trade the ETFs, but create a strategy that’s tracked by an ETF.”
The Man GLG Europe Plus Index, which includes investment in UK listed companies, has
outperformed MSCI Europe for four of the past five years. The Man GLG Europe Plus Source ETF,
with current assets of EUR700 million, is one of the largest European equity ETFs that does not
follow a traditional benchmark.
In 2013, Source, a leading ETP provider, launched two new ETFs: Source Man GLG Continental Europe Plus UCITS ETF and the Source Man GLG Asia Plus UCITS ETF, both of which offer exposure based on strategy used in the Man GLG Europe Plus Index.
The long‐only, total return equity strategies use high quality ideas from leading brokers to create liquid, highly diversified equity portfolios. The strategies aim to further improve the returns from the idea contributors by using a variety of algorithms that detect patterns in the ideas received.
“These brokers are providing us fundamental ideas based on published research that have 2-3 month investment horizons,” said Radnor. “We don’t trade the ETFs, but create a strategy that’s tracked by an ETF.”
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