Legg Mason Inc has entered the exchange-traded funds (ETF) market with the launch of four new outcome-oriented index-based ETF funds in partnership with its investment affiliate QS Investors. The four funds are branded under the Legg Mason name and began trading on the Nasdaq Stock Market on December 29, 2015.
According to the firm, increasing concerns about macroeconomic risks, equity volatility and the continuing search for stable income are pressuring investors to look beyond traditional market cap weighted indices.
Rick Genoni, head of the ETF business at Legg Mason, said that there are compelling opportunities to help investors achieve their objectives, "whether capital preservation, income, or growth in an ETF format as the market grows and the ETF vehicle evolves" and that "outcome-oriented products have the potential to serve the needs of investors looking to better diversify across risks in their portfolios".
Three of the new funds (Legg Mason Developed ex-US Diversified Core ETF; Legg Mason Emerging Markets Diversified Core ETF; Legg Mason US Diversified Core ETF) take a macro approach to building portfolios and balancing risk to deliver broad market exposure that can complement core portfolios. Based upon QS Investors' proprietary rules-based methodology, Diversification Based Investing (DBI), the new funds have been designed on the understanding that capitalisation-weighted indices are not balanced across opportunities and risks in the market place. DBI focuses on construction techniques to provide better diversification across macro exposures, like geography and economic sector can improve risk/return characteristics and mitigate unintended bets and therefore potentially lower drawdowns during macro-economic events.
James Norman, President of QS Investors said that partnering with Legg Mason for this launch is part of the firm's long-term focus on "innovating to serve investor needs" and "create better solutions".
Many investors think of ETFs only as market cap indexed vehicles, but our macro diversification and sustainable income approaches target specific investment outcomes in a cost-effective format, said Norman.
Legg Mason launched a fourth fund, the Legg Mason Low Volatility High Dividend ETF, focused on income, risk mitigation and capital appreciation. This ETF was designed upon the premise that a stock's ability to sustain a strong dividend payout is often associated with lower volatility, making these two characteristics complementary. Using a rules-based methodology, the fund will screen for stocks with the potential for sustainable high dividends, while simultaneously screening out historically volatile stocks in the market.
The firm filed with the US Securities & Exchange Commission (SEC) for permission to create index-tracking ETFs, as a first step in building its own suite of passively and actively managed ETFs. Legg Mason pouched two executives (Rick Genoni and Brandon Clark) from the Vanguard Group's ETF business (second largest worldwide) to join the firm in the first quarter of 2015. The firm plans to launch additional ETF products in the coming months.
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