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By Paul Justice, CFA | 05-29-2012 01:00 PM

ETFs Get Tactical on Income, Real Assets, Global Allocation

New tactical SSgA ETFs aim to help investors reduce risk and add return and income, says the firm's U.S. Portfolio Group head Chris Goolgasian.

Paul Justice: ETF investors had proven to be good selectors of funds, but oftentimes they find it difficult to find the right mix of those funds.

Hi there. I'm Paul Justice, director of ETF research at Morningstar. Today I'm talking with Chris Goolgasian from State Street Global Advisors, the head of the U.S. Portfolio Group, to talk about some of the ETFs that you've recently launched that are focused on tactical allocation and have an active management tilt to them.

Thanks for joining me today, Chris.

Chris Goolgasian: Thanks, Paul. Pleasure to be here.

Justice: So you have three funds that have recently been launched. All of them have a different approach to get in the market and incorporate some of the quantitative and active signals that your group generates. Can you talk about what those funds are?

Goolgasian: Sure. So, we've launched three products; one INKM focused on income solutions; one RLY focused on a real asset solutions; and one with the ticker GAL focused on a global allocation approach. And the genesis of these is that we found investors of all stripes, be they our typical institution or even individuals are asking the same two questions and those questions tend to be: What could I have done differently in the credit crisis, and where can I get more yield?

Those questions are pretty consistent themes out there. And we think that tactical is a way that answers, partly, both of those questions. It's not a full answer, but it's a part answer. So we think that tactical, by moving between asset classes, can possibly help to reduce risk and add return, while at the same time in our INKM fund, tactically maneuvering between income-producing asset classes could also help with your total return, as well as keeping your yield to a more attractive level.

Justice: So you're addressing all the concerns people have today. How do I get more income? How can I fight inflation? Where should I be at on the globe? Is the U.S. is on the decline? So, you've got three solutions for that.

One challenge that investors have faced for a long time, and numerous studies have shown, that most investors are really bad decision-makers when it comes to choosing an asset class. Now you've got a pretty large team, and you've been doing this for quite a long time. Can you talk about some of the professionals that are behind making these decisions?

Goolgasian: Sure. And you're exactly right. It all starts with the people and the research process. So our group in the Investment Solutions team at SSgA is about 50 portfolio managers deep, and that's a global basis. So it's truly Paris, and London, and Australia, and Toronto, and Boston.

Justice: Like one of these big bank commercials.

Goolgasian: Exactly. The screens are all up and everyone's chiming in. And that team averages about 15 years experience. So what we do with that team is we blend quantitative signals on over 100 asset classes everyday with the fundamental views of those 50 portfolio managers, and that process, that mix, is really what creates the decision-making for our tactical portfolio.

So if we're going to be underweight or overweight the U.S. versus Europe, or large cap versus small cap, or REITs versus inflation bonds, those are all our tactical decisions that we're referring to, and those decisions come out of this team.

That process has been developed over 20 years. We now have about $20 billion in tactical assets, largely from an institutional base. Our clients tend to be endowments, defined benefit plans, sovereign wealth plans. And those type of clients a have very rigorous process that they're looking for when they select a tactical manager.

So they have a defined risk budget. They have defined bands in terms of the size of trade you can make, and that process and that discipline that we are providing to those clients is exactly what we're bringing into these SPDR ETFs. We're bringing that institutional tactical approach into a vehicle that can now be accessed by individuals.

Justice: Sure. So you have got three choices for people, three different strategies that they can approach the market, get some institutional experience behind, because we know that implementing a lot of these quantitative signals on their own can be very, very difficult.

Goolgasian: Yes.

Justice: Thanks for those insights. Thanks for joining me. For this and other ETF news, please check out Morningstar.com and our ETFInvestor news site.

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