One of the distinguishing aspects of the new SSgA funds is that they add an active management element to the asset allocation space, an arena generally dominated by passive funds, which focuses on diversified exposure schemes to capture growth and income in the long run. Currently, there only are 27 asset allocation ETFs out of more than 1,400 U.S.-listed ETFs according to IndexUniverse’s “ETF Fund Finder.”
The reason that there are not more asset allocation providers, Goolgasian said, is that it demands extensive resources on the part of a firm to conduct reviews across the globe of a varied group of asset classes.
In setting up its asset allocation ETFs, Goolgasian said that SSgA is drawing on the expertise of its Investment Solutions Group, which has $20 billion in tactical business strategies, similar to those that will be utilized in the active ETFs, and has beaten its benchmark for eight of the last 10 years.
SSgA uses its Market Regime Indicator model that takes into account VIX, credit spreads and currency volatility to help determine asset allocation. “This is a forward-looking model,” Goolgasian said. “However, when our views differ from the indicator, we don’t follow it.”
Several weeks ago, AdvisorShares filed paperwork to bring to market an actively managed ETF similar to the SSgA funds.
The AdvisorShares Pring Turner Dow Jones Business Cycle ETF (NYSEArca: DBIZ) will own everything from U.S. and foreign equities to high-quality corporate debt to other ETFs and ETNs, keeping its asset class and sector allocations flexible to reflect the market’s changing business cycle.
With bond market returns relatively low and investors still trying to control risk in the wake of the 2008 financial crisis, asset allocation strategies are a logical compromise, according to Goolgasian.
“We are not going to see investors going back 100 percent into equities,” he said. “We are in a bullish market for tactical solutions because this [risk aversion] is going to be with us for a long time.”