abrdn eyes quant-based active ETFs to beat thematic data challenges

ETFs will incorporate quantitative insights for higher conviction

Theo Andrew

abrdn 2

abrdn said it will incorporate its quantitative capabilities into its upcoming active ETF range in a bid to overcome some of the data challenges with thematic investing.

Speaking to ETF Stream, Yassar Ali, global head of product strategy and development at abrdn, said a systemic approach to thematics can often lead to issues around revenue alignment from a company to a targeted theme.

However, the group plans to use its quant capabilities – allowing it to incorporate a company that aligns with a theme using other metrics – to deliver an “added layer of conviction”.

“We plan to build these ETFs using a combination of our fundamental active capability and our quant capability,” he said.

“The challenge of investing in thematics in a purely systemic way is, depending on the theme, data. Having a paired approach allows us to be much more particular in terms of aligning companies with a theme.”

In February, the group said it was set to launch ‘future of’ trade, food and real estate ETFs as it looks to grow its range throughout 2024.

Thematic ETFs will often use metrics such as revenue, patent data or even machine-based learning algorithms to assess a company’s theme alignment, which can vary greatly depending on the provider.

Ali said the approach will allow it to be “more nimble” with an “added layer of conviction”.

“If you are particularly keen on a company and you see a clear qualitative alignment it allows you to bring in names which might not necessarily make it through a pure, systematic-based approach,” he said.

“It will allow us better coverage, scalability and we can also stick to our core investing principles.”

abrdn’s thematic ETF ‘family’

Ali also revealed the abrdn was looking to build a “family of thematic ETFs” in Europe over the coming months as it bids to expand its offering from one.

The group entered the market in March last year with the Global Real Estate Active Thematics (GREAT) UCITS ETF (R8TA) but has yet to launch another product.

However, Ali said was developing a range of ETFs where it had a “high level of investment conviction” while leveraging its active management capabilities.

“When we were thinking about our ETF platform we wanted to play into our capability, as well as wholesale demand for thematic products and the need to have more choice for investors,” he said.

“We want to create a family of thematic ETFs, and individual ETFs, that we think are relevant and in themes where we have a high level of investment conviction.

“We want to have commonality in how it leverages our core thinking but also in the naming convention. There should be recognition within our investor base this ETF belongs to abrdn.”

He noted there was now a “tipping point” among fund selectors, who are looking for greater choice and innovation in the shape of active ETFs.

Distribution challenges

While abrdn has made no secret of its plans to distribute its ETFs among its subsidiary platform, interactive investor, Ali said the group will be targeting both ends of the wealth spectrum, a challenging area in the active ETF space.

Ali added headwinds such as retrocessions and due diligence have made growth across Europe difficult while familiarity with the active ETF space is still nascent.

“ETF selectors need to get themselves much more familiar with how they assess the active components [of an ETF],” he said.

“We will get there but it is not uniformly in place at the moment, there is growing demand across the continent.”

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