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July 15, 2014 at 01:36 PM
Like a mighty river, assets continue to flow into exchange traded funds, approaching the $2 trillion high-water mark earlier this month.
Add in ex-U.S. ETF assets and the year-to-date total is $2.6 trillion.
The flexibility, transparency, tax benefits and low costs of ETFs continue to draw the interest of advisors, who can use them to implement the most sophisticated strategies on behalf of their clients — but only if they have the most up-to-date knowledge.
That education gap was the key purpose behind ThinkAdvisor’s live virtual conference on July 24: “ETFs: From Alpha to Omega and Everything in Between.”
The keynote speaker, Rob Arnott, is something of a gadfly in an industry crowded with highly competitive, smart people.
To Burton Malkiel’s famous claim that a blindfolded monkey throwing darts could select stocks as well as investment experts, Arnott boldly showed the monkey would actually outperform active fund managers and market-cap weighted index funds.
How does an untrained monkey add this kind of value? By breaking the link between weight and price that handicaps professionals who tend to buy the largest, most popular stocks whose prices exceed their value.
In other words, most listed stocks are small and neglected, precisely those whose risk and return characteristics are most apt to outperform over time. So the blindfolded monkey is bound to capture more of that risk and return than the trained professional operating under constraints such as the need to deploy large hordes of investor cash.
But what makes smart beta smart is human, not simian, intelligence, and Arnott and his team of highly trained analysts have tested a large number of smart beta strategies aimed at helping advisors add a 2% or greater return premium over cap-weighed index funds.
Another luminary noted for his investment strategy smarts is Mebane Faber, the head of Cambria Asset Management and a veteran investment blogger especially known for a quantitative approach aimed at eliminating the heartache of the volatility-exposed buy-and-hold investor.
Faber’s latest push is to quantify “blood on the streets,” and load up on it in his Cambria Global Value ETF (GVAL).
Faber uses forceasting of Robert Shiller’s cyclically adjusted price-to-earnings ratio (Shiller CAPE) to rank the cheapest countries, the ones he says are getting the worst current headlines and whose stocks consequently reside in the bargain basement.
