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Insights from Inside ETFs US

Feb. 07, 2020

Feb. 07, 2020

Photo: Qontigo. 

By Hamish Seegopaul, Managing Director, Quantitative and Multi-Asset Solutions, Qontigo

Last week, it was the time of the year when the US ETF community – product issuers, index providers, service providers, and, of course, financial advisors – meets in the beachside town of Hollywood, Florida, to exchange ideas, attend talks and, if lucky enough, catch a glimpse of the sun.

I was one of the over 2,000 attendees at this year’s Inside ETFs. Conversations centered around both established growth areas – factors, ESG, fixed income – as well as newer ones, such as semi-transparent ETFs and self-indexing technology.

Focus on factors

For me and Qontigo, the focus was on factors, following the concurrent launch of our STOXX Factor Indices. Our main message: portfolio construction matters.

I joined the conference’s panel entitled ‘Multifactor ETFs Explained.’ Let me share some insights with you:

   ● The focus of the panel was around unpacking some of the complexity of choices available to investors. 

   ● Highlighting the challenge investors face: even the panel itself could not agree on what to call baskets of single factors – combined vs. mixed vs. top down.

   ● The central theme was around portfolio building, and how construction choices can have meaningful impacts on a strategy. These choices and outcomes are essential for investors to understand.

   ● To illustrate this, I walked the audience through a portfolio construction exercise, building a ‘simple’ two-factor portfolio, and observing how construction choices can have a material impact on the result.

Trend talk

There was also a chance to discuss newer growth areas in ETFs. These included:

   ● Semi-transparent ETFs: US regulators are green-lighting new methodologies to potentially reduce the disclosure requirements for active ETF managers. Multiple approaches exist, but the market seems content to wait for a winner. 

   ● Self-indexing: the STOXX iSTUDIOTM demos at Qontigo’s booth were a hot ticket, with excitement from clients over future enhancements. 

While financial markets are already shaping up to look quite different than in 2019, more innovation in the ETF space is clearly on its way. We at Qontigo are excited to continue playing our part.

 

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