Financial Advisors Look to Smart Beta ETFs to Diversify Risk

“We learned that our advisors – 72% of advisors – expect us as managers to infuse their best thinking, even in their passive products, which is sort of like, ‘Well, how do you infuse your best thinking in the S&P, for example’,” Marc Zeitoun, Head of Strategic Beta, Columbia Threadneedle, said at the 2019 Charles Schwab IMPACT conference.

“We took an approach where we took the Russell 1000, and we applied our research, and we took out the names we don’t like because we thought that if you’re going to track an index, at least give yourself an edge,” he added.

For example, the Columbia Research Enhanced Core ETF (RECS A-) and the Columbia Research Enhanced Value ETF (REVS A-) offer investors and advisors’ cost-efficient access to the firm’s quantitative investment research strength.

RECS seeks to track the company’s Beta Advantage Research Enhanced US Equity Index, and REVS tracks the newly created Beta Advantage Research Enhanced US Value Index. RECS and REVS are designed to outperform the Russell 1000 Index and Russell 1000 Value Index, respectively, through a combination of proprietary investment research with market-capitalization weighting. The idea is for the ETFs to optimize equity exposure by removing unfavorably rated stocks from the benchmark.

The purpose of this approach is to address the common concern voiced in a recent survey conducted by Columbia Threadneedle, which found 65% of financial advisors feeling frustrated about not being able to remove underperforming stocks from passive ETFs’ indices.

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