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Image Source: FTSE Russell Elusive Alpha: will Smart Beta replace hedge funds? ·          Research from FTSE Russell suggests that 36% of institutional asset owners are currently evaluating smart beta, up from 15% in 2014 ·          Like the original attraction of hedge fund, return enhancement and risk reduction are the primary motivations for reviewing Smart Beta strategies.  Unlike hedge funds, cost savings are an attraction too. ·          High fees and lack-lustre returns in the hedge funds universe is resulting in outflows, whilst recent acquisitions by traditional asset managers suggest there is growing demand for Smart Beta expertise A survey published this week of 250 institutional asset owners with AUM in excess of USD2 trillion suggests that there is continued growth of interest in reviewing Smart Beta strategies.  The survey is published by FTSE Russell and is available here . It suggests that 36% of institutional asset owners are currently evaluating sm

FOMC Board Minutes suggest potential interest rate rise next month Futures market pricing a 32% chance of a hike in June, compared to a 6% chance last week and a 4% chance a fortnight ago: markets expectations are adjusting accordingly. If rate hike becomes more likely, this is potentially negative for risk- and rate-sensitive asset, and gold.   Positive for dollar, short-dated bonds and financials. Will Fed watch the economy, or the markets? Fed Rate Hike Warning: never say never… Prospects of rising interest rates sooner than the market had become ready to expect will pull away the prop for equities and hence negative equities.  The S&P500 ( NYSEARCA:SPY , NYSEARCA:IVV (US); LON:CSPX (UK)) has dropped to a seven week low, and is now flat on the year, weighing down global equities (iShares MSCI ACWI Index Funds NASDAQ:ACWI (US); Vanguard FTSE All World Index LON:VWRD (UK)). The increased chance of a Fed rate hike creates downside risk at the long

Smart Beta and the portfolio construction puzzle ETFs are a convenient building block for portfolio construction and there has been a rapid expansion in the number and type of ETFs available. Smart Beta indices so far have been confined to single-asset classes and give an alternative approach to weightings of securities within an index/ETF. Smart Beta strategies are emerging that are multi-asset or multi-factor and give an alternative approach to weightings of indices/ETFs within a portfolio. ETF portfolio strategies can be designed to target specific client outcomes and systematically constructed and adapted to offer a liquid alternative investment approach that is more consistent with real-life market conditions than traditional portfolio construction techniques. The growing range of ETFs and of ETF portfolio strategies available broadens the toolkit available to deliver client outcomes. The portfolio puzzle The Rubik’s cube has become a popular metaphor for the mar

Adding to equities Results of our monthly rebalancing of the Elston Strategic Beta Global Min Volatility suggests adding to Equities and further reducing exposure to Commodities. The strategy’s current allocation to equities is 31.18% which is +4.10ppt from last month, +3.59ppt from end 2015, and -28.02ppt lower than this time last year.  Allocation to commodities steadily increased from May 2015 and with a -12 month peak allocation of 19.04% in August 2015. Over the last 12 months*, the effective return for the index is 4.14% and annualised volatility is 5.92%. About the index This Elston Strategic Beta Global Min Volatility Index (ticker ESBGMV) aims to provide a globally diversified multi-asset long-term growth strategy with minimised portfolio risk (minimum volatility). The index invests in ETFs which are transparent, cost-efficient, liquid vehicles that are publicly traded. This index is weighted according to a proprietary methodology based on an optimis