As smart beta strategies have increased, investors—and some advisors—have been left wondering: What the heck is it? Rob Arnott of Research Affiliates, the firm that is frequently credited with coining the term “smart beta” (mistakenly, he’d say), spoke with Investment Advisor about these strategies.
The April issue also features the third of four articles dissecting the results of the 2013 People and Pay study by FA Insight. With the increasing prevalence of lead advisors—and their impending retirement—many firms are struggling to fill what will be a very big hole. FA Insight’s Eliza De Pardo and Sarah Pelonio explain what those firms can do.
And the amount of assets in MLPs has grown an explosive 900% since the end of 2009, according to Curt Pabst of Eagle Global Advisors. He goes over the costs and benefits of different MLP strategies to help determine which might be best for a portfolio.
Advisors are often skeptical of following massive flows of money, preferring to stick to a planned asset allocation and fund families with which they’re comfortable. Think of all the money that flowed into bonds during 2012 as the equities’ bull run gathered steam. Investors were climbing that wall of worry, but advisors’ job is to manage emotions in investing.
So what to make of the massive flows of money that have been going into vehicles—mutual funds and especially ETFs—that pay homage to “smart beta”? Are those fund flows merely a response to smart marketing ploys? Does the entire notion of smart beta make any sense? Is it not just taking a tilt toward active investing nestled in an index wrapper?
Group Editor-in-Chief Jamie Green talks to Rob Arnott, chairman and CEO of Research Affiliates and the “grandfather of fundamental indexing,” as well as executives at Charles Schwab, to learn more about the new class of strategies.
See Also: With increased attention comes increased criticism. Smart beta skeptics have their say too.
In the 40 years spanning 1972 and 2011, the average consumer price for a gallon of gas increased nearly 10-fold from 36 cents to $3.53 per gallon. Netting out the effects of inflation, the price jump was still a dramatic 75%. As gas became dearer, vehicle fuel efficiency rose in step. Average vehicle fuel economy improved from 13.5 to 23.6 miles per gallon over this same period—a 75% increase.
In much the same way that the automobile industry has adapted to increasingly scarce resources, advisory firms must confront similar challenges related to their lead advisors. As primary revenue generators and client service providers for the firm, these experienced advisors undoubtedly play the most critical role in an advisory firm’s success. According to “The 2013 FA Insight Study of Advisory Firms: People and Pay,” our fifth annual advisory firm study, about one in every four team members is a lead advisor—more prevalent than any other position.
Eliza De Pardo and Sarah Pelonio explain how firms can make the most of their most expensive advisors.
Investor appetite for master limited partnerships (MLPs) has grown steadily for the past several years. Drivers include the hunt for yield in a low-yield environment and the search for businesses that can profit in a plodding U.S. economy. Wall Street continues to fuel this appetite for MLPs with products that promise to make life easier with features like Form 1099 tax reporting and daily liquidity. These products include closed-end funds, open-end mutual funds, exchange-traded notes and exchange-traded funds.
The number of MLP-dedicated products has grown from 13 products totaling $6 billion at the end of 2009 to 59 products with aggregate market cap of over $55 billion at the end of 2013, a staggering 900% increase in three years. While the aggregate market cap of MLPs also grew during this period from $160 billion to $590 billion, the percentage of MLPs held in publicly traded products grew from 3.7% to 9.3%.
Curt Pabst, managing director of Eagle Global Advisors LLC and co-advisor of the Eagle MLP Strategy Fund, examines the costs and benefits of some of those products, with a focus on midstream energy-infrastructure-dedicated MLP investment options.