Enter the experts. Combining academic research with the front-line experience of issuers can help produce better ETFs, according to Mo Haghbin, head of product at OppenheimerFunds’s beta solutions business.
That’s why it’s recruited two academics from Harvard Business School and one from the London School of Economics to a new advisory board. The trio also weighs in during weekly strategy calls on topics such as how to construct multi-factor funds that focus on emerging markets, or the investment rationale behind thematic products, like artificial intelligence, Haghbin said.
Similarly, Campbell Harvey, who teaches at Duke, joined Research Affiliates in October as a partner and senior adviser. Going one further, Joel Shulman, who teaches entrepreneurship at Babson College outside Boston, has started his own ETF under the EntrepreneurShares brand.
“With what’s happening in smart beta and all of these different strategies coming to market that may or may not have merit, it’s really important that sponsors take the time to do this research,” Oppenheimer’s Haghbin said. “The next big innovation in smart beta could be something that was researched 10 to 20 years ago that hasn’t made it into the mainstream yet, so we want to continually have this dialogue and feedback loop.”
History Lesson
Of course, academia has long informed asset management, and vice versa. Nobel laureate and Yale professor Robert Shiller teamed up with Barclays Plc to start an exchange-traded note back in 2012; Wharton’s Jeremy Siegel was instrumental in getting WisdomTree Investments Inc. off the ground a decade ago; while Burton Malkiel -- who wrote ‘‘A Random Walk Down Wall Street” -- is on several fund indexing committees and serves as chief investment officer for Wealthfront Inc., an ETF-focused online financial adviser.
Some of the largest players also employ their own academics to gain an edge. BlackRock Inc., the world’s largest ETF issuer, hired Andrew Ang from Columbia Business School back in 2015 to lead its factor-based strategies team, and partnered with MSCI Inc. to re-imagine how advisers think about factors. MSCI, meanwhile, relies on its own Ph.D.s to develop the measures that will work for both ETF issuers and investors.
All that big-name firepower matters. Having Ang on board has helped BlackRock “enormously,” said Rob Nestor, head of iShares smart beta, noting that Ang’s relationship with some of the world’s largest pension funds has encouraged greater collaboration with them. For MSCI, research is also a core selling point that differentiates the firm from its rivals, according to Raman Aylur Subramanian, who heads equity applied research for the Americas at the indexer.
But all that knowledge and expertise has to amount to more than window-dressing, cautions Duke’s Cam Harvey. He’s found more than 200 phony factors documented in academic literature.
“Just because you have an academic affiliated with you, that’s just not enough,” he said. “You want the academic to be doing something that will ultimately benefit the investor and the firm. If you add value for the investor, you will benefit the firm.”