State Street Global Advisors Finds Investors are Adopting Factor-Based Models in Low Return Environment
May 03 2016 - 9:00AM
Business Wire
New Research Reveals a Shift in Strategy to Bridge the
Performance Gap
State Street Global Advisors (SSGA), the asset management
business of State Street Corporation (NYSE:STT), today released a
new report that found investors are reassessing strategic asset
allocation models and turning to objective- and factor-based
approaches to better achieve investment objectives in a low-return
environment.
The research, which surveyed 400 global institutional investors,
found that investors recognize the need for change and that
increasing adoption to approaches including objective- and
factor-based models such as smart beta strategies may offer better
risk weighted returns. However, many stated that more education is
necessary to build confidence and adoption.
Despite the lower for longer return environment, respondents
shared that they are looking for a 10.9 percent return on their
long-term portfolio performance, with a mere 13 percent saying
that, on average, their asset classes were performing above
expectations. Of those experiencing returns below their long-term
expectations, 84 percent believe that portfolio under-performance
will continue for at least another year and 16 percent believe it
is more likely to continue for two to four years.
The research found that investors acknowledge new approaches
will be required, with 97 percent of respondents expecting
significant change in the industry’s investment approach over the
next five years.
“The models of investing across the institutional landscape are
evolving as institutions are beginning to question whether they can
achieve objectives through traditional investment models in the
current lower-for-longer return environment,” added Rick Lacaille,
chief investment officer at State Street Global Advisors. “Not only
does this challenge traditional, strategic asset allocation models
by forcing greater consideration of risk – it also confronts
investors with a need to focus from a top‐down perspective on the
drivers of returns in their underlying asset class choices.”
Additional findings include:
- For investors facing diminished
returns, traditional approaches are still dominant, but alpha
remains elusive in a low return, high fee environment and investors
are looking for new perspectives. Although 59% indicated a
preference to increase their allocation to active investing, 38% of
respondents say smart beta would be among the approaches they would
consider to address performance shortfalls.
- While 41% of all respondents indicated
that traditional asset class distinction remains the single most
important way of approaching asset exposures, alternative
classifications including factor-based and objective-based make up
30% and 25% respectively.
- There is evidence of a shift however,
as 39% of respondents in the Americas and 31% in EMEA have already
used smart beta to address performance shortfalls, and 76% of users
report a moderate-to-significant improvement in meeting long-term
aims.
Although a willingness to uncover new perspectives is evident,
investors still face significant barriers to the adoption of new
approaches.
- Institutions are conscious of the need
to find better ways to meet long-term performance goals, however
change can be slow. A few identified obstacles that still exist
include slow peer group adoption (62%), difficulties obtaining
board buy-in (46%) and a lack of in-house expertise (46%) all of
which impede the transition to a factor based strategy
approach.
“Many institutions are struggling with different investment
policies that don’t meet their needs,” said Lori Heinel, chief
portfolio strategist at State Street Global Advisors. “This shift
certainly won’t happen overnight, but investors will need to
develop the appropriate knowledge base and expertise, secure the
support of key partners like boards and participants, and weigh
their overall objectives before making the leap. While we are still
in early stages of industry-wide adoption, investors who have
adopted factor-based approaches are seeing positive results.”
The survey was conducted by FT Remark and surveyed 400
institutional investors including sovereign wealth funds, pension
plans, endowments and foundations, insurance companies and asset
managers in December 2015.
To read the full report, please click here.
About State Street Global Advisors
For nearly four decades, State Street Global Advisors has been
committed to helping financial professionals and those who rely on
them achieve their investment objectives. We partner with
institutions and financial professionals to help them reach their
goals through a rigorous, research-driven process spanning both
active and index disciplines. We take pride in working closely with
our clients to develop precise investment strategies, including our
pioneering family of SPDR ETFs. With trillions* in assets under
management, our scale and global footprint provide access to
markets and asset classes, and allow us to deliver expert insights
and investment solutions.
State Street Global Advisors is the investment management arm of
State Street Corporation.
*Assets under management were $2 trillion as of March 31,
2016. Assets under management include approximately $33 billion as
of March 31, 2016, for which State Street Global Markets, LLC, an
affiliate of SSGA, serves as the distribution agent.
CORP-1943
For public use.
Investing involves risk including the risk of loss of
principal
All information has been obtained from sources believed to be
reliable, but its accuracy is not guaranteed. There is no
representation or warranty as to the current accuracy, reliability
or completeness of, nor liability for, decisions based on such
information and it should not be relied on as such.
The information provided does not constitute investment advice
and it should not be relied on as such. It should not be considered
a solicitation to buy or an offer to sell a security. It does not
take into account any investor's particular investment objectives,
strategies, tax status or investment horizon. You should consult
your tax and financial advisor. All material has been obtained from
sources believed to be reliable. There is no representation or
warranty as to the accuracy of the information and State Street
shall have no liability for decisions based on such
information.
©2016 State Street Corporation
Exp. Date- 5/31/2018
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State Street CorporationAndrew Hopkins,
+1-617-664-2422Ahopkins2@StateStreet.com
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