Products September 23, 2021

Investment Product and Service Launches

BNY Mellon Investment Management creates custom target-date builder; Hartford Funds builds commodity-focused ETF; Northern Trust invests in Essentia Analytics; and more.

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Art by Jackson Epstein

Art by Jackson Epstein

BNY Mellon Investment Management Creates Custom Target Date Builder

BNY Mellon Investment Management has expanded access to its BNY Mellon Custom Target Date Builder (CTDB), with Voya Financial becoming the first recordkeeper to support the solution.

“As we expand access to our CTDB offering, we are delighted that Voya, a top-tier recordkeeping firm, will be supporting this adviser solution,” says Andy Provencher, head of North America Distribution, BNY Mellon Investment Management. “Voya’s platform is a great choice for our CTDB offering as its adviser-friendly, open architecture platform enables retirement specialists to build plan level custom target-date solutions in an efficient and bespoke manner for retirement plans of all sizes.”

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Customization in target-date funds (TDFs) has been popular in the mega plan defined contribution (DC) market for years, the firm says, and the BNY Mellon CTDB solution now provides retirement advisers with glidepath and model management, and the ability to leverage their own research and intellectual capital. 

“At Voya, we continue to see client and adviser interest in our offerings, capabilities and resources, and we are delighted to be the first recordkeeper to support the CTBD,” says Jeff Cimini, senior vice president, retirement product management at Voya Financial. “We remain focused on providing the products and programs that we know will support the financial professionals we work with to help their clients reach their future goals. Using the technologies already in place in our systems today, CTDB provides a new opportunity for advisers to implement their own strategies, ultimately helping to facilitate better retirement outcomes.”

Hartford Funds Builds Commodity-Focused ETF

Hartford Funds has launched its first commodity-focused exchange-traded fund (ETF), Hartford Schroders Commodity Strategy ETF, which will be sub-advised by Schroder Investment Management North America Inc. and Schroder Investment Management North America Ltd. The strategy seeks long-term total return by investing in a range of commodity-related instruments. The actively managed fund’s performance benchmark will be the Bloomberg Commodity Total Return Index.

“Hartford Schroders Commodity Strategy ETF allows us to offer our clients exposure to an alternative asset class that we feel is ripe for opportunity in the current market environment,” says Vernon Meyer, chief investment officer at Hartford Funds. “This product further demonstrates our commitment to providing both our existing and prospective clients diverse, long-term investing opportunities that can help them achieve their investment goals.”

The ETF will primarily invest in a range of commodity-related derivative instruments, such as futures and other commodity-linked swaps, along with cash or cash equivalents including certificates of deposit, treasury bills, floating-rate notes, and equities of commodity-related companies. The fund will seek exposure to a range of commodity sectors from time to time including, but not limited to, the energy, agriculture and metals sectors. As the fund’s sub-adviser, Schroders will consider fundamental, quantitative and technical sentiment to determine the asset allocation to various commodities. The fund may also invest in structured notes, debt securities, convertible securities, and foreign currency.

The new fund is listed on the New York Stock Exchange ARCA, Inc. The portfolio management team consists of James Luke, Malcolm Melville and Dravasp Jhabvala, three dedicated investment professionals on Schroders’ commodities team with an average of 17 years of investment experience. 

Northern Trust Invests in Essentia Analytics

Northern Trust has reached an agreement to take an equity stake in Essentia Analytics, Ltd.

Essentia Analytics is a behavioral analytics and consulting services provider that utilizes a cloud-based platform to combine historical data and behavioral science to identify and address biases in investment performance. 

The addition of Essentia behavioral analytics solutions is an extension of “Northern Trust Whole Office,” a strategy that facilitates client access to new technologies, services and solutions across the investment lifecycle. 

“We continue to pursue a strategy that combines Northern Trust’s global architecture with innovative partners like Essentia to help clients maximize the value of their data and optimize investment performance,” says Pete Cherecwich, president of corporate and institutional services at Northern Trust. “Essentia’s next generation data analytics technology allows institutional investors, both asset managers and asset allocators, to embed data-driven feedback into their investment process. Through our Whole Office partnerships, Northern Trust clients across the globe can access advanced technology, skills and services designed to help them make repeatable and measurable decisions in the quest to deliver alpha.”

Essentia Analytics combines data analytics, client-driven “nudges” and specialist behavioral coaching to provide a feedback loop for active investment decisions.

Working with foundational investment portfolio data from Northern Trust filtered through Essentia’s proprietary process, investors can gain insight into their more skilled and less successful investment patterns, at both the firm and individual level, in order to optimize decisionmaking.

“As asset managers and allocators seek to maximize alpha, it is crucial that they are able to identify behavioral biases and decision-making deficiencies and adjust their approach accordingly,” says Clare Flynn Levy, founder and CEO of Essentia Analytics. “We look forward to the opportunity to work with Northern Trust to bring enhanced productivity and investment performance to the front office of clients across the globe.”

Northern Trust Launches ESG ETF Suite

Northern Trust Asset Management’s FlexShares exchange-traded funds has launched a new suite of core environmental, social and governance (ESG) ETFs focused on climate.

The funds include FlexShares ESG & Climate US Large Cap Core Index Fund; FlexShares ESG & Climate Developed Markets ex-US Core Index Fund; FlexShares ESG & Climate Investment Grade Corporate Core Index Fund; and FlexShares ESG & Climate High Yield Corporate Core Index Fund.

The four new climate ETFs add to FlexShares’ existing ESG ETF offerings, FlexShares STOXX US ESG Select Index Fund (ESG) and FlexShares STOXX Global ESG Select Index Fund (ESGG). The new fund suite seeks to help investors improve their portfolio’s overall ESG score and reduce carbon risk, while maintaining core equity and fixed-income exposure. The funds utilize the Northern Trust ESG Vector Score as well as a carbon risk rating in an effort to hedge ESG-related risks and capitalize on sustainable opportunities.

“The combination of our ESG Vector Score and carbon risk rating creates a complementary strategy to identify sustainability leaders and laggards in each sector in a consistent way,” says Christopher Huemmer, senior investment strategist for FlexShares ETFs. “In response to heightened client demand for climate investing, we created this new suite to offer core investing strategies that we believe are better positioned to benefit from the ongoing transition to a low-carbon economy.”

The ESG Vector Score methodology developed by Northern Trust Asset Management seeks to identify ESG-related business issues most likely to impact a company’s financial performance and a portfolio’s investment return. The scoring methodology relies on a framework established by the Sustainable Accounting Standards Board (SASB) that seeks to determine sustainability industry leaders and mitigate sustainability risks before they impact the company’s financial statements and the portfolio’s performance.

With climate change a top concern among many investors and regulators globally, each strategy in the core ESG ETF suite also includes a special focus on carbon risk. In partnership with Institutional Shareholder Services (ISS), each company is examined using a carbon risk rating methodology to determine its current carbon emissions, its efforts to reduce its carbon footprint, and its potential exposure to carbon risk relative to other companies in its industry. Using these ratings, each strategy in the suite targets a reduction in aggregate carbon emissions and carbon reserves relative to its parent index, while also targeting an overall improvement in its carbon risk rating.

Hartford Funds Launches Its First Sustainable Investing-Focused Fixed Income ETF

Hartford Funds has launched actively managed ESG-focused fixed income exchange-traded fund (ETF), dubbed the Hartford Sustainable Income ETF, which will be sub-advised by Wellington Management Company LLP.

The fund seeks to provide current income and long-term total return, within a sustainability framework. It will invest across an array of fixed income sectors including high yield, investment grade, bank loans and emerging market debt. In addition, the ETF will incorporate a sustainability framework as part of its principal investment strategy.

The ETF will track its performance against the Bloomberg U.S. Aggregate Bond Index, and it will be managed by the same portfolio management team that currently manages The Hartford Strategic Income Fund. That is, Campe Goodman, Joseph F. Marvan and Robert Burn will serve as the ETF’s portfolio managers.

“We are excited to launch a multi-sector bond fund that uses a sustainable investing approach in an ETF structure,” says Vernon Meyer, chief investment officer at Hartford Funds. “The launch of this actively managed ETF product further demonstrates our commitment to providing options that not only help investors seek to achieve their long-term investment goals, but also provide investors with the opportunity to invest in a product that uses a sustainable investing approach.”

Wellington Management will use its internally developed sustainability framework to identify issuers it believes have demonstrated a commitment to sustainable practices. These issuers include those that Wellington believes can have a positive social and/or environmental impact, are leaders or are demonstrating improvement in ESG characteristics based on Wellington’s proprietary insights, and/or those that Wellington engages with on ESG characteristics to improve ESG disclosure and best practices.

*PLANSPONSOR and PLANADVISER are owned and operated by Institutional Shareholder Service (ISS).

In Practice September 23, 2021

Views of Adviser M&A Have Evolved

A majority of advisers reached as part of a recurring Nationwide survey increasingly expect merger and acquisition activity to have a positive impact on their practices.

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Nationwide has published the seventh edition of its Advisor Authority study, finding registered investment advisers (RIAs) and financial professionals in the wirehouse and broker/dealer channels have grown even more bullish about merger and acquisition (M&A) activity over the past year.

Simply put, more advisors and financial professionals are looking to monetize their practices in the years ahead, with some looking to make their practices stronger through strategic and/or serial acquisitions. Overall, about two-thirds of financial professionals expect consolidation and M&A activity in the industry to increase in the next 12 months.

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Notably, this year’s survey shows more respondents expect M&A to have a positive impact on their practices—54% in 2021 compared with 42% in 2020.

“Our study makes it crystal clear that RIAs and financial professionals in the wirehouse and broker/dealer channels are more bullish about M&A than we’ve seen in years,” says Craig Hawley, head of Nationwide annuity distribution. “Valuations are rising as markets hit new highs and private equity gets in on the game, meaning some advisers and financial professionals are more than ready to monetize their practice.”

According to Advisor Authority, roughly three-fourths of RIAs and fee-based financial professionals (73%), nearly three-fourths of wirehouse financial professionals (74%) and roughly two-thirds of broker/dealer financial professionals (65%) say that consolidation and M&A in their industry will increase. Expectations for deal flow are substantially higher than last year, up 14 points (73% vs. 59%) for RIAs and fee-based financial professionals, up nine points (74% vs. 65%) for wirehouse financial professionals and up five points (65% vs. 60%) for broker-dealer financial professionals.

The study also cites what have become very familiar factors as the main drivers of consolidation, including the need for scale, the impact of fee compression, the price tag for maintaining/improving technology and the cost of compliance. These competitive pressures hit all firms hard, according to Nationwide’s analysis, especially the smallest.

Positive Impacts Expected from M&As

The majority of advisers and financial professionals expect M&A activity to positively impact their businesses in the next 12 months. Nationwide says this is substantially higher than last year, up 16 points (55% vs. 39%) for RIAs and fee-based financial professionals, up 20 points (68% vs. 48%) for wirehouse financial professionals, and up 13 points (52% vs. 39%) for broker/dealer financial professionals. 

Hawley notes that, among those who expect M&A to have a positive impact on their business, 2021 is the first year of the study in which RIAs and fee-based financial professionals say “increased opportunities to sell their business” is one of the leading benefits of M&A. Specifically, the number of RIAs and fee-based financial professionals who cite increased selling opportunities as the top benefit of M&A is up 13 percentage points from last year, a figure Nationwide calls “much higher than prior years.” For context, this figure was measured at 35% in 2021, 22% in 2020, 29% in 2019, 29% in 2018 and 20% in 2017.

According to Nationwide, this is also the first year that wirehouse financial professionals cite increased opportunities to sell their business as the leading benefit of M&A, up 13 percentage points from last year and higher than previous years, at 38%. This compares with 25% in 2020, 32% in 2019 and 23% in 2018.

Among RIAs and fee-based financial professionals who expect M&A to have a positive impact on their business, “greater resources to serve their clients” has been selected as a top benefit of M&A every year of the study, with the exception of last year, when it tied for the second most important benefit. Likewise, among wirehouse financial professionals, greater resources to serve clients has also been selected the top benefit of M&A every year, with the exception of this year, when it was the third most important. For their part, broker/dealer financial professionals selected it as the third-most important factor this year, down from the most important benefit last year.

Year over year, Nationwide’s Advisor Authority has shown that the most successful advisers and financial professionals—defined as those who earn more than $500,000 or individually have total assets under management (AUM) of $250 million or more—are consistently more bullish about M&A than all other advisers and financial professionals. They are also more optimistic about the benefits to their firm, as nearly two-thirds of successful advisers and financial professionals (63%) say M&A activity will positively impact their businesses in the next 12 months, as compared to roughly half of all other advisers and financial professionals (51%).

Successful advisers and financial professionals who expect a positive impact on their business from M&A say the top three reasons include increased opportunities to sell their business (37%), greater resources to serve their clients (36%) and ability to provide ongoing employment for existing employees (34%).

Some M&A Concerns

On the other side of the balance, a small number of advisers and financial professionals (13%) say consolidation and M&A activity in the RIA industry will most likely negatively impact their businesses in the next 12 months. In particular, 11% of RIAs and fee-based financial professionals, 9% of wirehouse financial professionals and 15% of broker/dealer financial professionals expect M&A to negatively impact their business.

Among the three most common concerns of those who expect M&A to have a negative business impact, pricing compression is most frequently cited by RIAs and fee-based financial professionals (40%), wirehouse financial professionals (37%) and broker-dealer financial professionals (38%). Increased competition is also cited as a top three concern by RIAs and fee-based professionals (37%), wirehouse professionals (39%) and broker-dealer professionals (40%). Making it harder to compete as a small independent firm is cited by RIAs (39%) and broker-dealers (37%), while pressure to sell products that might not be right for their clients is cited by wirehouse financial professionals (35%) and broker-dealers (37%).

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