Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Trends in ETFs: model portfolios and more growth
(Pictured: Amanda Skelly)
State Street Global Advisors, the biggest provider of exchange-traded funds (ETFs) in Australia, is predicting another year of strong growth in the sector following last year’s 50 per cent increase, which took total ETF fund assets to $10 billion.
Amanda Skelly, head of ETFs for SSgA in Australia, told clients last week that growth was likely to remain above the 10-year compound rate of 28 per cent, and ending this year at more than $13 billion in total assets for the sector. She noted that last year’s growth was largely driven by cash flows of $2.5 billion.
“Trends in investor usage, product innovation and education… will be the key growth drivers this year,” Skelly said. “Importantly, this will be supported by continued advancements in administration platforms – including online brokers, traditional investment platforms and managed account providers.”
Internationally, new ETF products which have done well in the past year are bond and actively managed funds. Active ETFs are not yet approved for ASX listing. Skelly sees Australian new developments this year as likely to be in the areas of advanced beta and international markets.
“One development we anticipate will continue during 2014 
is the expansion of ETF model portfolios,” she said. “These portfolios not only provide investors with the simplest way to access the best asset allocation ideas of some of the world’s leading investors, but can also serve to provide valuable insights for self-directed investors.”
