"Smart beta index funds are helping investors to build more resilient portfolios"
Jul. 02, 2012
Isabelle Bourcier is Head of Business Development at the french ETF issuer Ossiam. We discussed with Ms. Bourcier the positioning of Ossiam in the booming ETF market, the benefits of "smart beta" index funds and which roles ETFs should play for high net worth investors.
MyPrivateBanking: What is driving in your opinion the boom in exchange traded and index oriented funds?
Isabelle Bourcier: Index strategies that deliver passive market exposure – or beta – have long attracted investors. The development of ETF in recent years is driven by a growing need among investors for ease of access to different asset classes and markets, and transparency. More globally investors have turned to index oriented funds and notably recently to so called smart beta funds and ETF in response to the systematic rise in volatility across global asset classes and the need for liquid investment tools. I would also add that this recent trend in terms of development of “smart beta” index funds and ETF corresponds to the need for tools addressing the weaknesses of market capitalisation indices. This innovative form of indexing is helping investors to build more resilient portfolios. Smart beta indices harness the power of technology to deliver repeatable sources of returns that are often based on well-established investment theory. New approaches have been developed in the form of indices which replicate strategies employed by active managers. Investors can often benefit from implementing these strategies at significantly lower costs, reduced governance requirements, high levels of transparency and liquidity, and an improved efficiency of their risk budget through ETF.
MyPrivateBanking: What is the specific value Ossiam brings to the ETF markets?
Isabelle Bourcier: Ossiam is an affiliate of Natixis Global Asset Management, one of the 15 largest asset managers in the world* with € 562 billion in assets under management, as of 31 March 2012. We are focused on the development of smart beta ETF. Efficient indexing is at the core of Ossiam’s business model. Ossiam was created in response to the growing need among institutional investors for enhanced beta exposure and risk hedging. Q2 2011, Ossiam entered the European market with ETF based on two innovative investment strategies offering an alternative to traditional equity market cap-weighted indices: Equal weight and Minimum Variance. The Minimum Variance strategy, for example, addresses very specific needs, be it reducing volatility or achieving better diversification. Minimum variance can come in a variety of wrappers, including exchange-traded funds. The ETF wrapper for such a strategy offers an easy way to gain exposure to the smart beta delivered by mechanical, rule-based indices, with the benefits of liquidity, cost efficiency and transparency.
MyPrivateBanking: Can Ossiam – as a relatively small player – compete with big players like iShares?
Isabelle Bourcier: Ossiam is a research-driven asset management firm, specializing in delivering smart beta solutions. We do not intend to launch more than 200 “me-2” ETF to compete with iShares. Our added value is to be focused and to develop innovative solutions for investors, based on systematic and transparent investment approach. We benefit from the support of a big organization Natixis Global Asset Management, a multi-boutique investment manager. NGAM provides Ossiam with operational infrastructure, governance and distribution. The NGAM relationship enables Ossiam to have the focus of a small firm while clients benefit from robustness and stability of a large global asset manager.
MyPrivateBanking: Which role should ETFs play in the wealth management for affluent or high net worth individuals?
Isabelle Bourcier: A big role. ETFs are attractive investment tools because of their low costs vs actively managed funds, consistency in delivering returns of a chosen market or strategy, and stock-like features. The vicissitudes of financial markets in recent years have led to numerous investment conventions being challenged, including the belief that higher risk is rewarded with higher returns. A growing number of investors are not only turning to index fund solutions such as ETF but are now exploring new passive approaches. A recent survey of European institutional investors by consultancy bfinance, showed that one third expects to devote over ten percent of their portfolio to alternative index investments, quoting risk reduction and outperformance relative to the market cap indices as the main reason. We expect wealth managers and high net worth individuals to adopt a similar approach.
MyPrivateBanking: What are the three most important points an affluent investor should check when investing in an ETF?
Isabelle Bourcier: Number 1: as for any investment vehicle, investors should check if the investment approach of the underlying index explicitly addresses their objective such as risk/returns, time-horizon etc.. Number 2: investors should check if the underlying basket of the index is sufficiently liquid. Number 3: investors should be able to get access to sufficient and transparent information on the products when it comes to the fund management process in terms of risk, compliance and replication methodology, the costs and portfolio compositions. In this respect Ossiam publishes all the information on its website.
Isabelle Bourcier joined Ossiam in February 2011 after 17 years with Société Générale group. Since 2000 to January 2011, She was the Global Head of ETFs for Lyxor Asset Management, a Société Générale subsidiary. Since 2006, she was the Global Head of Exchange Traded Products for Société Générale group, in that role she was in charge of Lyxor ETF business as well as Société Générale warrants and certificates business. Isabelle holds a Masters of Management and International Marketing from the Institut Supérieur Européen de Gestion.