Fund selection plays a crucial role in portfolio construction. Once the asset allocation decision has been made, these individuals need to decide how they want to be exposed, be it through a mutual fund, investment trust or ETF.
Over the years, ETFs are becoming an increasingly important part of any investors’ toolkit. This series will show how the key players across the fund selection space use ETFs in their portfolios while asking what more can be done by the ETF providers to help with this increasing adoption.
Next in the hot seat is Will Bartleet, CIO and multi-asset portfolio manager at Pacific Asset Management. Will joined Pacific in December 2016 and is responsible for a range of multi-asset solutions.
Prior to joining Pacific, Will worked at HSBC Asset Management for 16 years, most recently as portfolio manager of a $5bn range of multi-asset funds and chairman of the firm's Tactical Asset Allocation Committee responsible for the tactical positioning of the $30bn wealth business.
How much of your portfolio is made-up of ETFs/index funds?
Our portfolios combine passive ETFs with actively managed funds, factor ETFs and direct securities. We spend a lot time thinking about the most effective way to access each asset class and assessing the probability of outperformance given the cost differential between active and passive funds. We have approximately 60% of our portfolios in ETFs.
When did you start investing in ETFs?
I started investing in ETFs fifteen years ago.
Which asset classes do you tend to invest in through ETFs?
At Pacific we invest in ETFs across most asset classes including equities, fixed income and gold. The likelihood of active management outperformance and the cost difference varies across asset classes. It is these two factors that drive our decision-making process.
Which areas would you avoid?
We avoid leveraged ETFs whose path dependencies are a killer for returns. The 2x emerging market equity ETFs still have not recovered from their 90% drawdowns in 2008, not helped by the fact that they are down over the last five years when the index is up.
What is your methodology for selecting ETFs?
We consider the total cost of ownership, tracking error and liquidity when selecting ETFs.
Do you have an ETF provider preference?
No, all providers have different strengths and weaknesses and so we look for the most appropriate provider for the asset class we are seeking to access.
What ETF products would you like to see more of?
We would like to see more competition in fixed income ETFs to break the near duopoly in place.
Any areas ETF providers could improve?
In a fight to the death on fees, one way that ETFs could differentiate would be to provide tools for portfolio managers to help with their allocations to sector, factor and smart beta strategies. Some have done a great job in giving PMs tools to assess the opportunity set and risks of these ETFs; others could probably do better.
Expert investors is a new series brought to you by ETF Stream where on a fortnightly basis we interview the key individuals from across the fund selection and research space about the ETF industry.
To read the previous edition of Expert Investors with Hoshang Daroga of Copia Capital, click here.