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All Things ETF: The 2017 Morningstar ETF Conference


All Things ETF: The 2017 Morningstar ETF Conference

Another year has come and gone, and Chicago is gearing up to host this year’s Morningstar ETF Conference  Sept. 6-8 conference at the Hyatt Regency.

Financial advisors and industry experts will convene to exchange investment tips and ideas to optimize an ETF portfolio in a shifting market environment and to tap into a dialogue about the latest developments in the industry.

At the Morningstar ETF Conference, a number of Morningstar analysts, like Ben Johnson, Alex Bryan and Adam McCullough will kick off the event by providing Morningstar data on research, ETF due diligence, and stewardship practices, among others.

Along with providing research points and in-depth analysis on ETFs, the Morningstar conference will also highlight a number of hot button topics that are shaping up in the current market, such as the rise of smart beta ETFs, strategies in a rising rate environment and international opportunities, to name a few.

For example, Lukas Smart of Dimensional Fund Advisors, Kal Ghayur of Goldman Sachs and Rob Nestor of BlackRock will discuss the rising number of smart beta ETF strategies on the panel titled “Making Sense of the Multitude of Multifactor ETFs.” There are now 730 various enhanced ETF strategies that do not adhere to traditional market cap-weighted methodologies with $607.7 billion in assets under management, according to XTF data. Consequently, investors have to more thoroughly scrutinize options to differentiate products and find the right one to fit in their portfolios.

Related: Morningstar Conference to Explore Where ETFs Are Heading

Darby Nielson of Fidelity Investments, Raman Aylur Subramanian of MSCI and Jason Stoneberg of Invesco PowerShares will head up a panel titled “How Might Defensive Strategies Fare in a Rising Rate Environment?” to help advisors find clarity through the fog of rate risk ahead. After a three-decade long bull run and stubbornly low interest rates, fixed-income and equity investors will have to re-evaluate their positions in a changing market ahead.

Nielson, speaking to ETF Trends, said investors can consider the impact of rising interest rates on defensive strategies from two important perspectives – the effects on both sector and factor returns.

“Through a sector lens, our research indicates technology, health care, and energy have had the best performance on average when the Fed was raising rates; meanwhile, utilities and consumer discretionary have had the worst,” Nielson said. “But there are important distinctions depending on the economic environment – if you look back at all the periods when the Fed was raising rates since 1962, about one third of the time, the Fed raised rates against the backdrop of a growing economy, and cyclical sectors, notably technology, significantly outperformed; but the other two-thirds of rate hikes came when the economy was slowing, and defensive sectors provided better performance, led by health care.”

Therefore, Nielson said the impact of rising rates on defensive sectors should be considered in the context of whether economic growth is accelerating or slowing.

“Examining factor returns, both value and small-cap strategies tend to outperform when rates rise, albeit for different reasons – value because higher interest rates usually reflect a healthier economy, and small-cap because those companies tend to be U.S.-focused and less susceptible to a stronger dollar,” he said.

“But the factor most heavily influenced by interest rates is a defensive one – dividend yield, which tends to underperform when rates rise, because bond yields become relatively more attractive for investors seeking income.”

To some degree this underperformance of yield is also driven by sector effects, since many dividend strategies are overweight sectors such as utilities, Nielson added.

“But the way an underlying factor portfolio is designed can help determine how it fares in a rising-rate environment, and can be driven either by construction techniques or factor selection,” Nielson said. “For example, a dividend strategy that is sector-neutral would tend to hold up relatively well when rates rise; also, screening for stocks with a positive correlation with bond yields can help protect against a potential rate headwind.”

Related: Morningstar, MMI Launch Sustainable Investing Initiative to Educate ESG, ETF Opportunity

On the panel titled “The Case for International Equities,” advisors will hear from panelists Fran Kinniry of Vanguard, Jeremy Schwartz of WisdomTree and Michael Arone of State Street Global Advisors on opportunities in international markets. Many investors have already begun to look beyond domestic markets as lofty valuations make U.S. stocks less appealing, whereas international markets that have been relatively depressed in many years are now appearing much more attractive.

Arone told ETF Trends the case for investing in international equities is simple and compelling – that’s where the growth is.

“After a strong start to the year, European equities experienced a mid-summer setback as the rising euro stoked investor fears about the continent’s competitiveness,” Arone told ETF Trends. “However, increased equity allocations to Europe should be based on more than better valuations and a reduction in political angst. While both of these factors remain tailwinds, investors should feel confident that, in a world with very little growth, Europe is becoming a growth investment. In fact, economic growth in Europe has outpaced the US during the last 18 months. As a result, as the second quarter earnings season came to a close, Euro Stoxx 50 earnings-per-share (EPS) growth far surpassed S&P 500 EPS growth.”

According to a preliminary estimate from the Cabinet Office, Arone said Japanese gross domestic product (GDP) grew at an annualized 4 percent for the quarter ending in June.

He added that was the sixth consecutive quarter of growth and the longest unbroken streak in more than a decade.

“The underlying details of the GDP report suggest that the trend will likely continue in the third quarter,” Arone said. “As a result, Japan could end the third quarter with its longest run of quarterly growth this century. Now trading at compelling valuations compared to the US market, Japanese equities will be further supported by the tailwinds of easy monetary policy and Abenomics slowly but surely pushing corporate governance in the right direction.”

For more information and registration information for the 2017 Morningstar ETF Conference, visit

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