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Beverly Chandler

Strategic beta grows in the US on back of ETFs


The fourth quarter report from analytics firm Cerulli Associates finds that the growth of strategic beta across institutional channels in the US is due in large part to the availability of these strategies through ETFs. 

"Different institutional managers are optimistic about the growth of strategic beta ETFs," says Jennifer Muzerall, senior analyst at Cerulli. "A number of institutional players are incorporating strategic beta ETFs because they allow investors to enhance returns beyond plain passive exposure, but in a lower-cost, more transparent, and liquid framework compared with active mutual fund management."
"Smaller endowments and foundations have been large adopters of strategic beta ETFs," Muzerall explains. "Many firms that have not been able to qualify for separate account pricing due to asset size have turned to the ETF vehicle to obtain strategic beta exposure." 
"Defined contribution plans and defined benefit plans have been slower adopters of strategic beta," Muzerall continues. "ETFs do not fit with their investment framework and the tax efficiencies do not create the same allure for retirement plans."
Cerulli finds that since the financial crisis in 2008, managers have been seeking alternative approaches for better risk-adjusted returns, all while feeling pressured to reduce their fees. In an effort to free up budgets and continue achieving strong returns, investors have begun embracing concepts such as strategic beta.

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