When People’s United Bank announced late last week that it was acquiring Gerstein Fisher, a $3 billion New York City-based boutique investment management firm, it joined a growing number of financial institutions buying up smart beta money managers.
(Related on ThinkAdvisor: Hartford Funds to Buy Smart Beta Firm Lattice Strategies)
Earlier this year, Hartford Funds bought Lattice Strategies, Columbia Threadneedle acquired Emerging Global Advisors and JPMorgan Chase bought a minority stake in Global X Management. Last year, Victory Capital bought Compass Efficient, Legg Mason acquired QS Investors and OppenheimerFunds purchased VTL Associates.
(Related on ThinkAdvisor: Columbia Threadneedle Moves Into Expanding Smart Beta Field)
It’s a trend that is expected to continue as asset managers try to expand their repertoire beyond traditional management in order to compete against the three big institutional money managers: BlackRock, Vanguard and State Street.
These acquisitions provide traditional asset managers access to one of the hottest investment strategies around, which is a cross between relatively expensive actively managed strategies and cheaper passive cap-weighted index strategies. Many, but not all, are acquisitions of firms with smart beta ETFs.
Those ETFs are a way for “bigger firms to build out their ETF strategy and move from active management where demand is declining, toward cheaper passive investing,” says Jennifer Muzerall, associate director at Cerulli Associates. “The way of the world is a move toward passive investing.”
At the same time, smart beta ETFs provide big investment firms a product that can potentially outperform traditional passive market-weighted indexed ETFs and charge higher fees than traditional market-weighted indexed ETFs.
Smart beta has become a catchall phrase for a variety of alternative index strategies that focus on specific factors, such as low volatility, dividends, momentum and cash flow that are used to screen stocks.