SS&C ALPS Virtual Summit on Active Management Full of Insight

The first session was moderated by Todd Rosenbluth and featured The ETF Store’s President Nate Geraci. Panelists Laton Spahr, CFA and Eric Hewitt from SS&C ALPs Advisors rounded out the session and explored the recent rise of active ETFs.

Spahr noted that great active managers from the mutual fund world have come over to ETFs. He also offered that big market changes are also contributing to the rise of active: “Whenever you are navigating those fringes of a change of regime, active management really shines.”

Geraci sees investors as being more open to active management than they previously have been. “This is a scenario where more supply is actually leading to greater demand,” Geraci offered.

Asked if this was a longer-term trend, Hewitt said, “We think there are some trends in place here that have some durability.” He also thinks there could be a healthy stream of new active products. New products often come in with lower fees, whereas legacy products have difficulty reducing fees.

Spahr shared that active is also benefiting from lower fees and the embrace of transparency: “Active management has found its niche and it’s easier to find quality active managers because of its transparency.”

For the second session, Paul Baiocchi of SS&C ALPS Advisors and Gibson Smith of Smith Capital Investors joined Rosenbluth and dug into active approaches to the fixed income space.

“The consensus has been for most of the year that growth was going to slow and inflation would come down,” said Smith. But growth has been more resilient and inflation has been surprisingly sticky. “On the bond side, we’re excited about having positive real rates,” he added.

Speaking to Fed policy, Gibson said, “The Fed is, in our opinion, done hiking rates.” His assumption is that the next move will be one of easing. “The big question though, along that line, is when and by how much?”

He discussed duration and concentration risk and the coming volatile environment to illustrate why active fixed is having a moment: “I think this is a ripe environment for active management.”

Baiocchi said Smith’s team is a world-class management team, and that it makes sense for fixed income to embrace both the ETF wrapper and active management: “I believe wholeheartedly that the ETF wrapper is one of the most important innovations in the financial services industry.” He cautioned that offering an ETF isn’t enough though; it needs to be strategically sound.

Smith offered some of his insights for his team’s strategic approach to fixed income: “Duration risk is largely prevalent in most fixed income strategies. It’s one of the areas we focus on in terms of generating return.”

The third session focused on municipal bonds and was lead by Baiocchi and Brown Brothers Harriman & Co.’s Greg Steier. Accordingly, it provided attendees a robust overview of municipal bonds.

“The muni market is a cornerstone for our clients. It’s the most diversified fixed income sector,” said Steier, who noted that munis are dominated more by individuals than institutions. “Valuations on muni bonds are often disconnected from their underlying fundamentals,” he said, noting that BBH takes advantage of these inefficiencies.

He shared that “one of our teams motto’s is ‘don’t go with the flow.’” Fund flows can cause volatility, and sentiment often drives that. 2021 saw record flows into munis, but his team noted record low yields and diminished possibilities. Outflows and challenging environments, meanwhile, provides opportunities. “We typically have large exposures in sectors and security types that fall outside the comfort of individual investors,” Steier shared.

Baiocchi spoke to the benefits of munis being available in the ETF structure, noting that “when you think about trying to reach as many investors as possible with a strategy, the ETF wrappers allows you to do that.” ETFs like the ALPS Intermediate Municipal Bond ETF MNDB are an effective way for advisors to access the muni space.

For more information, please visit VettaFi.com | ETF Trends.

REITs have always been an interesting corner of the alternatives world. For the final session, Karl Zeller of SS&C ALPs Advisors and Nick Tannura of GSI discussed active approaches to the real estate investment trust universe.

Real estate has been one of the most disrupted sectors since the pandemic. “The sentiment is overly negative,” Tannura said. Office spaces have been hit hard. But he noted that outside of office spaces, the REIT market is in good shape. “The companies are well-managed and have leveraged levels around 30%,” he said, noting that valuations are also attractive. Tannura also mentioned that, “when tightening cycles end, real estate and REITs do very well.” REITs could benefit from the eventual lowering of interest rates.

Both COVID-19 and the tightening interest rate cycle have bottomed property prices. But that means improved performance could very much be on the near horizon. Tannura thinks the fear that rates will remain higher for longer is already priced in. Office spaces have a lot of negativity priced in, for example. But they’ve actually performed well. They’re the fourth-best-performing real estate sector for one-year total returns.

The active approach to REITs is particularly relevant relative to an index approach. “Our company has a 17-year track record of delivering excess returns,” Tannura said. “In this particular category, active management works. So why would you index and leave that money on the table?” A strong bottom-up, fundamental approach that looks at relative value positions investors for success, according to Tannura: “Within sectors, we choose our overweights and underweights very carefully.”

SS&C ALPS has an active REIT strategy, the ALPS Active REIT ETF (REIT A-). Zeller noted that, “not only have we generated absolute return, we’ve outperformed the active mutual fund peer group … as well as the passive ETF peer group.”

Recaps of the event will be available soon.