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Global Equity Strategies

Tactical strategies dominate investor interest right now.

Cara Esser and Andrew Gogerty, 03/25/2013

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 Portfolios Landscape Report (which can be found 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 global (universe) equity (asset breadth) strategies, and upcoming commentaries will discuss other attribute combinations.

Accessing the Global Economy
Benefiting from an investor base that is growing increasingly comfortable with investment options beyond their own borders and enticing growth prospects in some developing and emerging economies, global investment strategies have been gaining interest. During 2012, World-stock ETFs had net inflows of more than $2 billion, an increase of nearly 50%.  Morningstar currently tracks more than 120 global equity strategies, with 14 new strategies launched since the start of 2011.

While global equity strategies are the third-largest universe and attribute combination, its total assets are less than half of the top two combinations (global all-asset and U.S. equity) as of the end of 2012. The group is not particularly large, but, given that some of the largest ETFs in existence provide access to global equities (such as Vanguard FTSE Emerging Markets ETF VWO and iShares MSCI EAFE Index EFA), it’s not surprising that global equity strategies land toward the top of the list. 

Collectively, equity strategies have kept pace with the industry’s growth, holding steady at approximately 42% of assets. But domestic strategies remain a focal point, with assets up 86% in 2012 and accounting for 60% of the assets in equity strategies. Global equity strategies logged a 30% growth in assets during 2012. 

Kings Among Men
While the top five strategies account for 52% of assets, overall, this group is less concentrated than the global all-asset and U.S. equity strategies where the top five players account for 75% and 60% of assets, respectively.

Cara Esser is a closed-end fund analyst at Morningstar.

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