Two categories within strategic beta equity captured the majority of these flows:
1. Equity dividend ETFs. Many investors last year turned to equity dividend ETFs to meet their income needs in the low interest rate environment, and we believe they will continue to do so. Many retirees in need of income with an opportunity for capital appreciation may also gravitate toward these types of investments.
2. Minimum volatility ETFs. One of the biggest concerns we hear from investors today is related to the recent run up in stocks. As a result, investors may be hesitant to invest in equities because they fear increased risk and stretched valuations. These concerns lead us to believe that minimum volatility ETFs may serve as compelling solutions to such investors in the current market environment as these funds are designed to provide diversified access to stocks with lower expected volatility than the overall market.
As investors seek strategic beta solutions, and as these solutions become more readily available, it’s important to keep in mind that no matter the strategy, diversification is key. Strategic beta is meant to compliment a diverse portfolio of investments, not replace market-cap weighted funds altogether.
Dodd Kittsley, CFA, is the Head of Global ETP Market Trends Research for BlackRock and a regulator contributor to the The Blog. You can find more of his posts here.