Partner Insight: ETFs - What's beyond index investing?

Active research and active design strategies aim to provide purer play exposure to themes and robust diversification in early-stage sectors poised for growth. Watch the video podcast to learn more.

Sarka Halas
clock • 2 min read

As ETFs gain in popularity, the difference between investment strategies is not always clear.

"Some investors are drawn to the idea of an individual fund manager's ability to pick winners and feel that knowing the exact criteria for inclusion into a fund is not essential. For others, the ability to look under the bonnet and understand how the machine works is important. Ultimately, it can often come down to investor preference," says Aanand Venkatramanan, Head of ETFs, EMEA at LGIM.

LGIM blends active research with actively designed investment strategies - an approach that goes beyond what investors may see as index investing.

"We understand that themes, particularly themes in the early stages, cannot be tracked in a purely passive manner," says Venkatramanan.

The firm works with third-party providers that focus on specific themes to derive bottom-up, evidence-based proprietary data. The data are then used to design investment strategies that capture companies at the forefront of innovation addressing demographic, energy and technology megatrends.

"Investors can think of it as replacing a pure play active manager with a highly disciplined, rules-based, fully transparent strategy that has low overlap with mainstream indices - while still providing the liquidity investors need." he says.

In the case of clean energy, the industry is still in the early stages and poised for growth over the next couple of decades.

"It's very difficult to identify winners and losers at this stage, so our investment approach and philosophy is to identify a basket of stocks that not only seeks to provide purer access to the themes, but also grows and evolves with the theme," says Venkatramanan.

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Important Information: For professional clients only. Past performance is not a guide to the future. The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. It should be noted that diversification is no guarantee against a loss in a declining market. Views expressed are of LGIM as at June 1, 2023. The Information in this document (a) is for information purposes only and we are not soliciting any action based on it, and (b) is not a recommendation to buy or sell securities or pursue a particular investment strategy; and (c) is not investment, legal, regulatory or tax advice. Legal & General Investment Management Limited. Registered in England and Wales No. 02091894. Registered Office: One Coleman Street, London, EC2R 5AA. Authorised and regulated by the Financial Conduct Authority, No. 119272.

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