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    Model Portfolio Education

    Due diligence: 8 Factors to Consider When Selecting an ETF Model Portfolio

    • With the growing number of model portfolios available, specifically those implemented with a managed account, model selection has become a more complex task.
    • A comprehensive due diligence framework may serve as a guide when distinguishing one provider from another.

    ETF model portfolios each have unique characteristics and finding the right strategy can be a challenging task. When using models and managed accounts, remember that you are not just buying an investment solution - you are also selecting a provider to partner with over the long term. As a result, you may want to employ some best practices when conducting due diligence on investment providers.

    State Street Global Advisors partnered with Greenwich Associates to conduct a study to better understand what investors are looking for in their model portfolio strategies and providers. From this research, we developed a comprehensive due diligence framework that may help you differentiate between model providers and select the best partner to help you achieve your specific goals.

    The eight factors are:

    1
    Process
    • Is the investment process clear, understandable, and repeatable?
    • Do the product characteristics meet your clients investment needs?
    • Does the provider partner with platforms that can execute as outlined in their investment processes?
    2
    Performance
    • Does the performance track record satisfy your expectations?
    • Does the provider employ best-in-class performance evaluation standards?
    3
    Price
    • How are management fees broken out vis-à-vis the fees related to the underlying securities?
    • What is the full value-for-fee, taking into account brokerage and administration fees?
    • How are costs minimized with respect to security turnover?
    4
    Resources
    • Does your provider allocate dedicated resources to manager and ETF research?
    • How does the supporting infrastructure (compliance, legal, risk, etc.) factor into the process?
    • Has the provider resources that effectively meet client needs?
    5
    Reputation
    • Is the firm regarded as a stable producer of quality product?
    • What is the provider’s background in the ETF space?
    6
    Talent
    • How experienced is the portfolio management team?
    • What kind of access to key professionals do clients have?
    • Is there local investment team members backed up by global team?
    • Is there clear division of labor and subject area expertise?
    7
    Communications
    • Are product messages consistent and easily interpreted?
    • Is reporting timely, effective, and thorough?
    • Does the provider support client education?
    8
    Transparency
    • Does the provider explain the process by which benchmarks are selected?
    • How does the provider approach revenue-sharing agreements with third parties?
    • Are you confident in the accuracy of provided performance and attribution documentation?

    Source: State Street Global Advisors in partnership with Greenwich Associates, ETF Model Portfolios: The Due Diligence Factor, 2018.

    Choosing an ETF Model Portfolios Provider

    ETF model portfolios can be complex and have unique characteristics; it’s important to take into account all the value-add factors that result from this. Users of these strategies should remember they are not just buying a portfolio—they are also selecting a partner to support you and the portfolio over the long term. As a result, buyers of these products should rely on established best practices when implementing due diligence procedures for ETF model portfolios.

    We are here to help support you throughout any stage of your due diligence process. Contact the State Street ETF Model Portfolio Team to understand how we can help.

    Issued by State Street Global Advisors, Australia Services Limited (AFSL Number 274900, ABN 16 108 671 441) ("SSGA, ASL" or "State Street Global Advisors, ASL"). Registered office: Level 14, 420 George Street, Sydney, NSW 2000, Australia · Telephone: 612 9240-7600 · Web: www.ssga.com.

     

    State Street Global Advisors, ASL is the issuer of interests and the Responsible Entity for the ETFs which are Australian registered managed investment schemes quoted on the AQUA market of the ASX or listed on the ASX. This material is general information only and does not take into account your individual objectives, financial situation or needs and you should consider whether it is appropriate for you. You should seek professional advice and consider the product disclosure document, available at www.ssga.com/au, before deciding whether to acquire or continue to hold units in an ETF. This material should not be considered a solicitation to buy or sell a security. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETF's net asset value. ETFs typically invest by sampling an index, holding a range of securities that, in the aggregate, approximates the full index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index. Investing involves risk including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss. Holdings and sectors shown are as of the date indicated and are subject to change.  This information should not be considered a recommendation to invest in a particular sector or to buy or sell any security shown.  It is not known whether the sectors or securities shown will be profitable in the future. Sector ETF products are also subject to sector risk and non-diversification risk, which generally results in greater price fluctuations than the overall market. SPDR and Standard & Poor's® S&P® indices are trademarks of Standard & Poor's Financial Services LLC and have been licensed for use by State Street Corporation. The Dow Jones Global Select Real Estate Securities Index is a product of S&P Dow Jones Indices LLC and has been licensed for use by State Street Global Advisors, ASL. MSCI indices, the property of MSCI, Inc. ("MSCI"), and ASX®, a registered trademark of ASX Operations Pty Limited, have been licensed for use by State Street Global Advisors, ASL. SPDR products are not sponsored, endorsed, sold or promoted by any of these entities and none of these entities bear any liability with respect to the ETFs or make any representation, warranty or condition regarding the advisability of buying, selling or holding units in the ETFs issued by State Street Global Advisors, ASL.  State Street Global Advisors Trust Company (ARBN 619 273 817) is the trustee of, and the issuer of interests in, the SPDR® S&P 500® ETF Trust, an ETF registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940 and principally listed and traded on NYSE Arca, Inc. under the symbol "SPY". State Street Global Advisors, ASL is the AQUA Product Issuer for the CHESS Depositary Interests (or "CDIs") which have been created over units in SPY and are quoted on the AQUA market of the ASX. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without State Street Global Advisors, ASL's express written consent.

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