A: There are a number of opportunities we identified where we can bring additional investment management expertise to our ETF clients. This would include Nuveen for municipal bonds. Another one is the partnership with MFS for active equity investments. They are still building a track record and while we have not seen a lot of assets yet, we expect the ETFs will do well. We have a partnership with GSO Blackstone on bank loans, which is an area they offer expertise. Last and most recently there is DoubleLine Capital. We launched in April two additional products to go along with TOTL, which was a highly successful ETF launch for us in 2015. For these ETFs, we are the sponsor and we hire the subadvisor and work closely with them on how to position the products in the marketplace.
Q: In addition, some of your newer ETFs have come to market with the support of large investors. Can you cite some examples?
A: These are more joint development efforts. For example, Edelman Financial had a view on North American natural resources and NANR was formed. Another one was the SPDR SSGA Gender Diversity ETF we launched and the initial investor was the California State teachers plan. Diversity of our talent force is an issue that State Street believed firmly in. A third one was the Fossil Free product tied to the S&P 500 index, which was launched with the support of the Natural Resources Defense Council. We think there are a lot of investors that want to invest in a socially responsible manner.
Q: Smart beta has been a favored theme for investors and asset managers in recent years. What do you think of these dividend or low volatility strategies?
A: We are spending a lot of time with what we call factor investing or advanced beta products.
The term smart beta leads someone to believe that market cap weighted investing, which has been around a long time and been successful, is not smart. I am not a fan of that view. But we have seen some significant interest from institutional investors around slicing factors. We want to make sure we have products to meet this demand. Dividend investing is not new, but different ways at looking at dividends and focusing on factors would be.
The concern is that if investors do not commit to an investment strategy they can be disappointed. An example is a low volatility investor that did not keep up with a rising market in 2015 and decided to redeem their shares. They lost out on the benefits of this approach to start 2016 when that type of strategy worked relative to a market cap weighted approach. We are trying to educate the market place about the best way to use factor investing is from a long term asset allocation perspective.