Investors face myriad challenges as we move into 2017. Elevated equity valuations, rising interest rates, and anticipated volatility are creating an environment in which growing capital is a particularly tough proposition.
That’s precisely why Darek Wojnar, head of exchange-traded funds at Hartford Funds, says it’s more vital than ever for advisors to focus on the human side of investment management.
“Market dynamics matter, but constructing portfolios that match your clients’ needs is the best way to deliver real value,” says Wojnar. His advice to advisors? “Your clients are individuals with hopes, emotions and fears. Focus on that first, and then recommend tools that can help them address their true life goals.”
Hartford Funds offers a variety of multi-factor ETFs that are designed for growth and structured for resilience to help advisors and their clients navigate a changing investing environment.
While recent growth in the equities market has many investors focused on their gains, current valuations, which some believe are exaggerated, make it quite difficult for advisors to navigate the environment moving forward. Delivering on client expectations is particularly tough, especially for older investors for whom fixed income strategies play an important role in their investment portfolio.
“We’re not in the business of forecasting interest rates, but based on 30 years of economic data, we do believe that fixed income strategies will continue to deliver relatively lower long-term returns in the foreseeable future, despite future interest rate hikes,” says Wojnar. To more effectively identify growth opportunities, he urges advisors to dig deeper into the details of each client’s short- and long-term financial needs.
Basics like time horizons and current assets are a fine starting point, but to build a plan that truly addresses the needs of the client, he suggests taking that exploration much further. “Look closely at every aspect of each client’s life—their tax considerations, cash-flow requirements, health, and life-changing events that may be on the horizon. Then, with all that in mind, you can identify the most appropriate solutions for his or her core portfolio, and build from there.”
Strategic beta ETFs are becoming a go-to choice for building out that core, but with so many ETFs on the market, it can be difficult to wade through the options. The team at Hartford Funds believes a good place to start is with multi-factor ETFs that are built with the assumption that, while risk is a necessary part of the investing process, taking considerate and deliberate risk can help create the most appropriate balance for the individual investor.
To tackle this challenge, Hartford Funds MultiFactor ETFs seek to track indexes that are designed to allocate risks more efficiently, and depending on the strategy, provide a high level of diversification across geographies, asset classes and industries. Individual securities are selected based on assessment of valuation, momentum, and quality characteristics, in a comprehensive multi-factor process. But while more investors than ever are leveraging strategic beta ETFs to help manage risk exposure at a lower cost, not all advisors have jumped on the bandwagon.
The missing link seems to be education—for both advisors and their clients. In a Hartford Funds’ survey published this month, data revealed that 72 percent of advisors surveyed either don’t use Strategic Beta ETFs at all, or they have only a small percentage of assets invested in these funds. The primary reason? According to 41 percent of the respondents, it’s because they simply aren’t familiar with Strategic Beta ETFs and how they may deliver value. And if advisors don’t understand the offering, neither do their clients: as few as 14 percent of investors surveyed claimed to be familiar with Strategic Beta ETFs. (To read the full survey results, see Strategic Beta ETFs Underutilized in Managing Current Investor Anxieties, Hartford Funds Survey Finds.)
Wojnar sees this lack of education as an opportunity that can be overcome with the right level of education. For advisors and their clients alike, a real-world analogy can help drive home the why behind the what. “For instance,” says Wojnar, “value, quality, and momentum are the primary risk-premia incorporated within Hartford Funds’ Multifactor ETFs.
To help investors better understand those concepts, we like to use the analogy of buying a home, which is a concept almost every client knows at a personal level.” The analogy is a good one. Finding a home that has the right basic characteristics—the right number of bedrooms, space for the dog, maybe a home office and a yard—is step one. If that home is offered for $50,000 less than a similar neighboring house, it can create a ‘low entry point’, that’s ‘value’. If a home has a new roof, compared to an identical, but unimproved property, that’s ‘quality’.
Lastly, if one of the homes is in a neighborhood with award-winning schools and flourishing businesses, versus the other where families and businesses are moving out, the first home has demographic ‘momentum’ on its side. Presenting this simple analogy can help investors make the leap to understanding multi-factor investing pretty quickly.
2017 is likely to be a challenge for advisors and their clients, but by taking the time to understand each client’s needs, educating clients on the tools that can help them achieve their goals, and then constructing a portfolio that matches those characteristics, advisors can help investors make smarter choices that help balance risk and return.
“Focus on the investor sitting in front of you and consider what can help them meet their goals, while addressing their concerns, the way they define them. Using that as a starting point, you’re much more likely to be able to deliver a solution that can satisfy investors’ expectations over the long term. And that,” says Wojnar, “should be every advisor’s goal.”
Using its human-centric investing approach, Hartford Funds creates strategies and tools designed to address the needs and wants of investors. Leveraging partnerships with MIT AgeLab and leading practice management experts, Hartford Funds delivers insight into the latest demographic trends and investor behavior. As of October 24, 2016, the firm’s ETF line-up includes five strategic beta ETFs designed to help address investors’ evolving needs by leveraging a unique risk-optimized approach, which identifies risks within each asset class and then deliberately and systematically re-allocates capital toward risks more likely to enhance return potential.
Click here to visit the 2017 Market Outlook Channel home page.
History Comes Full Circle with Hartford and Wellington ETF Partnership
Published Wednesday March, 22 – 2:52 pm
Hartford Funds is expanding its lineup with two actively managed exchange traded funds backed by strategies from Wellington Management Company to help fixed-income investors navigate a changing market environment.
Wellington is where John Bogle, the Vanguard founder cut his teeth on money management. It seems like investment management is coming full circle with this partnership as a tenured insurance company and a legendary management firm partner on new ETF offerings.
On Wednesday, Hartford Funds rolled out the Hartford Corporate Bond ETF (NYSEArca: HCOR) and the Hartford Quality Bond ETF (NYSEArca: HQBD). HCOR comes with a 0.44% expense ratio and HQBD has a 0.39% expense ratio.
“In response to advisors’ call for a broad range of investment options, we’ve decided to further diversify our ETF lineup and enter the actively managed ETF space with two fixed income products,” Vernon Meyer, Chief Investment Officer of Hartford Funds, said in a note. “By fusing our ETF capabilities with the investment skill of Wellington Management, we are looking to maximize the value Hartford Funds can offer to investors.”
The two active ETFs are subadvised by institutional investment manager Wellington Management, which also subadvises a number of mutual funds for Hartford. Craig A. Gainey, Senior Managing Director, Partner, and Fixed Income Portfolio Manager/Credit Analyst, will manage HCOR.
The Hartford Corporate Bond ETF will try to provide total return with income as a secondary objective by investing in U.S. dollar-denominated, investment-grade rated fixed-income securities issued by corporate entities.
Wellington Management employs a bottom up approach to portfolio management, identifying issuers with favorable credit fundamentals and attractive total returns. The fund will also maintain a dollar weighted average duration equivalent to that of the Bloomberg Barclays U.S. Corporate Bond Index.
Michael F. Garrett, Senior Managing Director and Fixed Income Portfolio Manager, Val Petrov, Managing Director and Fixed Income Portfolio Manager, and Brian Conroy, Vice President and Fixed Income Portfolio Manager, will manage HQBD.
The Hartford Quality Bond ETF will try to maximize total return while providing a high level of current income consistent with prudent investment risk by investing in securities considered attractive from a total return perspective while providing current income.
The majority of holdings will be comprised of investment-grade fixed-income securities and will also include assets in mortgage-related securities, along with credit sectors, including non-agency residential and commercial mortgage-backed securities, asset backed securities, corporate bonds and covered bonds. The ETF may hold government debt exposure and utilize derivatives.
For more information on new fund products, visit our new ETFs category.
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