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Is Strategic Beta Having a Crisis of Confidence?

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Strategic beta has a long way to go, admits Marc Zeitoun of Columbia Threadneedle Investments who heads up the strategic beta group that just released results of its new study on advisor awareness in the area.

“One of our biggest problems is people don’t understand what they are investing in,” Zeitoun told ThinkAdvisor on Thursday at the Morningstar Conference in Chicago. “What I would like people to react to is, who is managing the money?”

The quantitative online study of 299 advisors taken April 2-9, 2019, had some key findings, some that surprised Zeitoun.

First, 98% of the respondents said they had “some level of familiarity with strategic beta investing,” which surprised Zeitoun. “That means almost everyone  knows about it,” he said. “But [we found] only 36% are confident in implementing it into their portfolios.”

A second finding that was “problematic” is that only 18% of advisors knew the portfolio managers on strategic beta funds, verses 27% who knew the names of portfolio managers on the active managed funds in which they are invested.

This means the conversation on strategic beta should be more about who is managing the fund and less about factors, he said.

Another finding that surprised him was when asked what was the primary reason advisors invest in strategic beta solutions, 38% stated it was to enhance portfolio diversification, while 23% said it was to incorporate factor-based investing. Only 4% said it was to lower fees.

“Lower fees should be the answer,” he said, adding that strategic beta fees may be higher than passive, but lower than active management.

Other findings from the study included that on average, advisors have discussed strategic beta with 15% of their clients. Of those, only 20% have invested in strategic beta ETFs.

That said, 51% of advisors surveyed stated they were somewhat or very likely to use strategic beta fund in client portfolios in the next year.

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