Comparing Fundamental Active, Smart Alpha, and Smart Beta Funds with Objective Factors
Learn how factor-based analysis of funds can identify underlying – and often unexpected – differences in similarly labeled funds. In a previous Style Research article, Bernie Nelson discussed key criteria for an effective factor-based analytical framework. In this new case study, Bernie puts this approach into practice, analyzing three funds labeled “US Large Value.” A deeper, more detailed comparison using transparent factors reveals distinctions in stock diversification, sector exposures, and specific styles – and shows how these funds are more different than their descriptions would indicate.
The DOL Fiduciary Rule adds pressure on asset managers and financial advisors already encumbered by increasing competition and ongoing regulatory change. That’s why factor-based analysis is so valuable. Analyzing funds based on individual factor exposures provides the level of insight, detail, and transparency that enables managers to respond not only to the new rule but to demonstrate greater product differentiation and deliver better customer service.
Analysts delve deep into portfolio holdings to see what drives performance.
Dimensional Fund Advisors’ Emerging Markets Value Portfolio is among the largest mutual funds focused on developing economies, housing $18 billion. Emerging markets have traditionally been seen as an area where active managers have an advantage, given market inefficiencies and the risks involved. Read the Citywire article, including independent analysis and charts from Bernie Nelson of Style Research.
Fund sellers need to ensure their funds are positioned effectively against competitors. Fund buyers need to understand fully what exposures and risk might be within products they are buying or holding.
How does your style factor framework stack up? Check against these six criteria for selecting factors to create equity product differentiation.
Author: Style Research | Categories: Peer & Competitive Analysis
Style Research provides in-depth analysis covering key equity factors on monthly and quarterly bases. On July 11th, 2017, Style Research presented the Q2 2017 Factor Performance analysis via a live webinar attended by hundreds of investment professionals. Read More
With the close of the second quarter, we are revealing our latest market analysis and factor performance results on Tuesday July 11. In particular, we will be looking out for the direction Value factors took. Value had an unprecedented “worst to first” rebound in 2016 after eight years of underperformance, but then reversed course again in Q1 2017. At that point, we also observed a shift towards Growth factors, which were especially strong in US equities. (Access the Q1 2017 analysis.)
Fund houses should differentiate themselves through philosophy and style, says John Kay
By John Kay
30 June 2017
Financial Times – FTfm (FT.com)
Copyright 2017 The Financial Times Ltd. All rights reserved.
The asset management sector in the UK is very competitive, but not very price competitive. This seeming paradox runs through the Financial Conduct Authority’s report on asset management, but is never adequately recognised or explained. But only by acknowledging it can regulators help to create an industry that works better for investors and for the economy as a whole.
While the final FCA Asset Management Study came down hard on the industry in terms of fees and the need for clearer performance measurement, it may have missed a trick. End-investors need to know more about their managers’ performance than just the absolute returns; it’s the consistency and the style integrity of their portfolios that lies at the heart of measuring the overall merit of the investment approach.
A year on from last June’s shock Brexit referendum result, negotiations have begun on the terms of Britain’s exit from the European Union. Shortly after the 2016 vote, we discussed the likely economic impact of Brexit, the investment factors anticipated to emerge most strongly, and how managers were positioned to respond. In this update, we review the past twelve months’ activity in three ways:
- How has the UK market behaved – which sectors and factors performed best over the period?
- How are domestic UK equity funds oriented, and how have they changed since last year?
- Which funds performed best, and what drove their returns?
How do you compare a fundamental active manager, a quantitative active manager, and a smart beta product?
Professional fund buyers and fund sellers don’t just look at historic performance or fees to differentiate equity products. Fund buyers demand more visibility into what they are buying or holding. What is the future potential for return and risk? Will buying or holding this product match their investment preferences and fit into their existing portfolio? Will the fund provider continue to manufacture a consistent product? Fund sellers also know that clear portfolio insights are essential to deliver their key messages and help them stand out from the crowd. They need proof statements to help them win business and retain clients. As in any market, other than competing on price, sellers must differentiate – or they will die. Read More