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Strategic beta ETFs ‘underused in managing investor anxieties’


Market volatility and geopolitical events are fuelling investor anxiety, yet most aren’t taking advantage of the full suite of investment options that may help manage risk exposure at a lower cost, namely strategic beta exchange traded funds (ETFs), according to a survey from Hartford Funds.

Further, while advisers are aware of these products, they aren’t familiar enough to begin using them in a meaningful way in client portfolios. Hartford Funds surveyed nearly 800 investors and more than 300 financial advisers to gauge sentiment and knowledge of strategic beta ETF strategies.
While most advisers (62 per cent) report being at least somewhat familiar with strategic beta ETFs, 72 per cent either don’t use them at all (36 per cent) or only have 0-10 per cent of client portfolios invested in these solutions (36 per cent). Of those advisers who do not invest in strategic beta ETFs, 41 per cent claim it is because they simply are not familiar enough. This disconnect is trickling down to investors too, as only 14 per cent claim to be familiar.
“As strategic beta ETFs proliferate the marketplace, advisors have an enormous opportunity to educate themselves and their clients about their potential advantages,” says Ted Lucas, head of systematic strategies and ETFs at Hartford Funds. “These investment products have the potential to help clients solve for specific objectives like growth, volatility and income – typically at a lower cost than traditional actively managed mutual funds.”
The survey revealed a sharp disconnect between usage and perceived potential benefits. Investors are most concerned about market volatility (36 per cent) and geopolitical events including elections and political unrest (22 per cent) when thinking about their investments, yet don’t have products incorporated into their portfolio to help address these challenges. Similarly, advisers cited the potential to achieve index outperformance (33 percent) and diversification (30 per cent) as some of the most attractive features of these products, yet are underusing them.
“Strategic beta ETFs provide advisors with an opportunity to help investors with the challenges in today’s low-growth and potentially volatile market environment looking forward,” says Lucas. “While strategic beta usage has often been tactical to date, many multifactor strategic beta products were designed for core allocations and long-term investments.”
The overwhelming majority of advisers consider strategic beta to be a tactical investment tool rather than a strategic “core” investment tool (72 per cent compared to 28 per cent). These findings align with the fact that only 5 per cent of surveyed financial advisers approximate that they allocate 20 to 30 per cent of assets to strategic beta in client portfolios, followed by 5 per cent of advisers who allocate more than 30 per cent.
The survey of 794 investors and 348 advisers was executed both in-person and via phone during the months of October and November 2016.

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