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Institutions using strategic beta ETFs to replace active strategies


Research from analytics firm Cerulli Associates finds that institutions are using strategic beta ETFs to replace active strategies. "Many institutional firms that were unhappy with the results from their active managers began seeking alternative approaches to risk-adjusted returns as part of the fallout from the financial crisis," explains Jennifer Muzerall, senior analyst at Cerulli. "A number of institutional players started investing in strategic beta ETFs as part of this shift."

Cerulli's latest report, Exchange-Traded Fund Markets 2015: Opportunities in the Face of Changing Dynamics, analyses asset managers that manufacture and distribute ETFs in the US and firms that offer packaged strategies of ETFs.
Some institutions look at strategic beta as replacing active strategies as strategic beta is a rules-based approach that has the ability to provide risk-adjusted returns in excess of a benchmark. Other institutions view strategic beta as a replacement for a core position.
"As the concept of strategic beta and systematic factor exposure develops, the number of ways to implement these strategies in portfolios continues to grow. Sponsors are now seeing institutional firms implement strategic beta as the third pillar to their portfolio in combination with their active and passive strategies," Muzerall explains. "Consultants feel that using strategic beta is an efficient way to diversify a portfolio while reducing overall volatility."

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