Demand for alternative beta strategies has increased by 30%, driven by growing interest among pension funds, endowments and sovereign wealth funds, according to a recent whitepaper published by investment consultancy bfinance.
The paper defines alternative beta strategies as a systematic rules process independent of underlying market movements in order to deliver a positive expected return.
According to the authors, Toby Goodworth, managing director, head of Risk and Diversifying Strategies, Chris Stevens, director, Diversifying Strategies and Kathryn Saklatvala, Global Content director at bfinance, the alternative beta landscape remains incredibly diverse, both due to variations in types of risk premia and practical differences in implementation and portfolio construction. Consequently, they caution against a one size fits all approach.
Kathryn Saklatvala (pictured) comments on the findings: “We have highlighted that to successfully implement these strategies, being up to date with the manager universe is key as six month old lists, for example, will not accurately reflect the fast moving landscape.”
Commenting on the diversity of strategies on offer, she adds: “..institutions should appreciate that risk premia choices are only the beginning and the product range is highly heterogeneous so manager selection makes a significant difference to portfolio outcome and combining managers can be beneficial to diversification. We hope that providing detailed insight from recent in-house analysis will help investors keep abreast of the latest developments in this fast-changing sector.”
While more than 90% of investors in alternative beta prefer a flat fee structure, report also highlights the aspect of hidden costs, with some providers charging a premium for a managed account and US providers tending to quote higher fees than their European counterparts.
The full report can be accessed here.
Turn on TV news market reports, flick to the financial commentary in the business pages, and more often than not those holding forth their views of the sector will be male.
Sometimes referred to as the ‘biggest manager you have never heard of’, Jonathan Boyd has caught up with PGIM for insight into its Europe region developments as part of global expansion