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U.S. Equity Strategies

Tactical strategies dominate investor interest right now.

Andy Gogerty, 02/06/2013

ETF managed portfolios are investment strategies that typically invest more than 50% of portfolio assets in exchange-traded funds. Primarily available as separate accounts, they represent one of the fastest-growing segments of the managed account universe. Morningstar has developed a proprietary classification system for ETF managed portfolios that identifies the investments’ portfolio attributes. The new structure consists of four main attributes: universe, asset breadth, portfolio implementation, and primary ETF exposure type. This system helps investors better understand the philosophies underlying these investment strategies. The latest Morningstar ETF Managed Portfolio Landscape Report (which can be accessed here) is a comprehensive industry review of strategies that report information to Morningstar’s separate account database.

In this series we’re taking an inside look at the industry using the combination of universe and asset breadth attributes as a starting filter. This commentary is focused on United States (universe) equity (asset breadth) strategies, and upcoming commentaries will discuss other attribute combinations.

A Twist on SPY and VTI

U.S. equity strategies benefit from one of the deepest, oldest sets of ETFs available. Many of the early ETFs brought to market were focused on different facets of the U.S.- equity universe, and strategists can slice the market in almost any direction, including sector, niche industry, market-cap, and style. The newer crop of ETFs has focused on non-market cap weightings such as equal- and fundamentally-weighted indexes and volatility-based screens. When viewed as a technology rather than an investment, the ETF has given tactical and strategic managers alike a cost-effective way to express a more-elegant view on the equity market. 

This expanded tool set, combined with a resurgent U.S. equity stock market and continued popularity of ETFs, has pushed significant assets into U.S. equity ETF managed portfolio strategies. These strategies account for a material share of total industry assets, as many advisors and asset allocators look to equities as a primary portfolio building block and likely remain biased toward their home-country market. When comparing ETF managed portfolios by Morningstar’s universe and asset breadth classifications, U.S. equity strategies rank second by size as of Sept. 30, 2012.

Collectively, equity strategies have kept pace with the industry’s growth, holding steady at approximately 42% of assets. But, as we noted in the most recent landscape report, U.S. strategies have been a focal point of interest, with assets up 61% in the first nine months of 2012 and now accounting for the largest portion of assets in equity strategies.  

Andy Gogerty

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