Advisers challenged by adoption of beta strategies

Advisers face major difficulties when interpreting strategic beta products for clients, according to a global research and consulting firm.

US-based Cerulli Associates noted strategic beta products offer advisers the opportunity to fine-tune investment exposures, however they require increasing intellectual capital to select amid an abundance of options.

A key challenge for strategic beta strategies is the difficulty that advisers face in interpreting them, and that the increasing expertise required to understand the products, and key discrepancies in how they are positioned, hinder product use, the firm said.

Cerulli’s adviser survey found that only 21 per cent of advisers report using strategic beta products, something it notes is a smaller portion than would be expected given the wide availability and product development focus.


It also found that 71 per cent of advisers report that not knowing whether the strategies are meant to produce alpha or outperform is a significant or moderate reason for not using them, while another 67 per cent state the same about lack of familiarity with the strategies.

Further, Cerulli noted that strategic beta ETFs, as indexed investments, are not alpha-generating, while using such products in concert may be alpha-generating but requires a highly skilled approach only available to the most proficient users.

“It is likely that the ambiguity about factors and what they are intended to accomplish is challenging strategic beta adoption,” said Cerulli associate director Daniil Shapiro.

“In examining how issuers position strategic beta exchange-traded funds (ETFs), Cerulli finds that 68 per cent of issuers often present the products as providing specific factor exposures, while 50 per cent state that they position the ETFs as generating alpha.

“Advisers, meanwhile, report using strategic beta products based on their desire for key outcomes, particularly downside risk protection and reducing portfolio volatility.”

Advisers challenged by adoption of beta strategies
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Adrian Flores

Adrian Flores

Adrian Flores is a deputy editor at Momentum Media, focusing mainly on banking, wealth management and financial services. He has also written for Public Accountant, Accountants Daily and The CEO Magazine.

You can contact him on [email protected].

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