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It’s all in the mix

By: Rolf Agather, managing director of North American research, FTSE Russell

Key takeaways from Schwab IMPACT 2017

Attending the most recent annual IMPACT conference of Schwab financial advisors in Chicago, I was astonished by the diversity of organizations that serve the financial planning community. I was also struck by the incredible variety of choices that financial advisors and, by extension, individual investors can draw from today to achieve objectives and navigate a turbulent world of markets, finances and investing.

Being a global index provider affords us a unique vantage point to comment on the mix of tools available to today's investor. Specifically, active and passive investment management techniques are converging and it takes financial planning and asset allocation expertise to combine these elements to most benefit their clients. At IMPACT, this combination of strengths was on full display.

In one discussion I saw Tony Davidow, Alternative Beta and Asset Allocation Strategist for the Schwab Center for Financial Research, set the stage for an evolving approach to asset allocation by revisiting modern portfolio theory; making the case for the strong role of both active and passive strategies in a global investment portfolio. “The world was different in 1952 when Harry Markowitz sat on a park bench and came up with MPT,” said Davidow; not to discount the relevance of Markowitz’ landmark theory but rather to introduce the concept of a market with many new realities, including increased volatility and correlations, generationally low bond yields and lower expected equity returns. This backdrop requires a broader set of asset classes to appropriately diversify assets to achieve each investor’s goals and objectives.  

Davidow stressed that investors have a much more robust tool box to draw on than ever before and suggested a smart mix of traditional market cap index-based investments, active investment management and newer smart beta index-based investments to meet a wide range of tactical and strategic portfolio objectives.

The ETF team from OppenheimerFunds, a traditional active investment manager venturing into index-based ETFs in recent years, led a discussion that outlined the new wave of smart beta investment management. Head of ETF investment strategy David Mazza walked the audience through the approach this traditional active investor has used for its new ETF offering. He described the firm’s new dynamic multi-factor ETFs as an example of where the best active insights and automation and efficiency of indexes can be utilized in a way that can benefit the end investor. Listening to David and his colleagues’ discussion, it became clear that the convergence between active and passive investment strategies is no longer merely an academic discussion, it is happening. The new dynamic multi-factor ETFs recently introduced by the Oppenheimer team can rotate into a unique multi-factor combination in response to a shift in economic conditions depending on their strategic forward-looking market view.

And, before you start thinking that “smart beta” has taken over and traditional market cap approaches have been forgotten, I also spent some time with our friends at Franklin Templeton, one of the largest global active investment managers, who has recently launched a total of 16 (14 country and two regional) ETFs that are based on traditional market cap-weighted indexes from FTSE Russell. Franklin Templeton has introduced these new products to address the needs of their clients, rounding out its Franklin LibertyShare ETF offerings they also include smart beta and active ETFs.

So what can we take away from all of this as investors? In my mind, it all comes back to finding the right mix. The investment community is more multi-faceted and diverse than ever before. Investors today can draw on all the ingredients that surround them, from financial advice to active and to passive investment management. We have more choices than ever and more tools at our disposal today as investors. Take advantage of it!



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