Exchange Traded Funds (ETFs) have experienced another strong year of growth to July 31 2014, reaching a market capitalisation of $12.3 billion, up 47.5%. Product development across the sector flattened out from the highs of 2011 and 2012 with a large amount of replication occurring across the issuers as the market continued to develop a base. However, more recent strategy development have resulted in a broadening of the ETF tools available for more comprehensive portfolio construction.
Zenith’s 2014 ETF Sector report focuses on the continuing theme of ‘yield hunting’ and examines the different methodologies ETF’s are using in the evolution of yield generating portfolios.
We also continue our examination of the ‘smart beta’ sector, those ETFs using alternative approaches to the more traditional market cap weighted strategies. While many of these strategies still lack long track records, early indications support recent global findings that alternative beta ETFs are capable of blurring the lines between active and passive strategies in terms of outcome.
Dugald Higgins, Senior Investment Analyst at Zenith Investment Partners said “The Alternative Beta story continues to show a lot of potential attraction and we see plenty of opportunity for these products as a low cost option for some portfolio exposures. However, we continue our caution regarding Alternative Beta ETFs on several key fronts. Users need to be aware of the inherent characteristics of these products which are very different from traditional market weighted strategies.”
From an initial universe of 96 Exchange Traded Funds: 2 were rated “Highly Recommended”; 25 “Recommended”; 7 “Approved” and, 62 “Not Rated”.
