Marketing Communication. THE SPDR ETFs GUIDE TO SMART BETA

Transcription

1 Marketing Communication THE SPDR ETFs GUIDE TO SMART BETA

2 Complete Guide to Smart Beta Bridging the gap between active and index strategies, smart beta represents an evolution in indexing. Rather than simply weighting stocks by market cap, these indices are constructed to identify specific factor exposures. And with our smart beta SPDR ETFs, you can potentially capture these factors, including quality, value and volatility. LOOK BEYOND CAP-WEIGHTED INDEXES FOR ADDITIONAL FLEXIBILITY TO HELP MEET YOUR INVESTMENT GOALS Smart beta (sometimes called alternative beta) provides investors with rules-based investment strategies offering relatively low-cost, transparent and flexible implementation. 2

3 What is Smart Beta? Smart beta is a form of investment management that represents an evolution in indexing. Its passive attributes are derived from its easily replicated, transparent, rules-based and cost-effective approach within a wide investment universe. Meanwhile, smart beta shares some similarities with active management, due to the active choice investors need to make about which factor exposures to target. These strategies can potentially outperform a standard market cap benchmark by using non-market cap security weights. Researchers have identified and documented the historic outperformance of certain risk premia or market factors for several decades. 1 However, many index providers and asset managers have only recently introduced investment strategies based on this research. In addition, definitions of smart beta can vary. For clarity, here s a brief overview of terms as we define them. Potential Benefits When serving as a complement to both active and traditional index strategies, smart beta can potentially offer investors a range of benefits, including: Enhanced Risk-Adjusted Performance Potential Whether in the form of excess returns or improved downside protection, smart beta strategies may provide an opportunity for better risk-adjusted performance relative to traditional cap-weighted indices. Preserving Popular Aspects of Traditional Passive Strategies Relatively low management fees, transparency, greater flexibility and low turnover make smart beta strategies attractive to investors who appreciate these features in traditional passive investments. Reduced Oversight Requirements Smart beta strategies may offer more systematic and predictable exposure to specific investment characteristics or factors, potentially reducing ongoing manager oversight responsibilities. TRADITIONAL BETA Market-cap weighted indexes that seek to represent a specific segment of the market as a whole. ALTERNATIVE BETA Traditional market-cap weighted indexes that seek exposure to alternative asset classes, such as REITs, commodities and natural resources. These alternative asset classes may have lower correlations to the broader stock market. SMART BETA Rules-based strategies or indexes constructed to identify and capture specific risk premia or factor exposures, such as quality, volatility and value. Strategies may employ equal weighting, fundamental weighting or weighting by standard deviation or variance. 1 Over the past several decades, academics and practitioners have discovered several compelling anomalies through empirical tests, highlighting certain equity factors that have earned excess returns, even after controlling for beta. These factors included low price-to-earnings (Basu, 1977), as well as a finding that beta itself was unable to explain returns (Black, Jensen and Scholes, 1972). A Smart Beta strategy does not seek to replicate the performance of a specified cap-weighted index and as such may underperform such an index. The factors to which a Smart Beta strategy seeks to deliver exposure may themselves undergo cyclical performance. As such, a Smart Beta strategy may underperform the market or other Smart Beta strategies exposed to similar or other targeted factors. In fact, we believe that factor premia accrue over the long term (5-10 years), and investors must keep that long time horizon in mind when investing. State Street Global Advisors 3

4 Complete Guide to Smart Beta WHEN DOES SMART BETA MAKE SENSE? Smart beta can serve a range of different roles within your portfolio. If you have... Strong beliefs that specific risk premia or factor exposures such as value, small-cap or low volatility stocks may outperform cap-weighted indexes over time. Smart Beta may provide... Relatively low-cost, rules-based exposure to individual risk premia or a combination of risk premia based on your specific risk and return objectives. A long-term time horizon with the patience to invest over a full market cycle. The opportunity to take full advantage of the long-term results of factor investing. Large core positions of traditional beta and the intention to improve upon the performance of traditional cap-weighted indexes. Diversification and enhanced risk-adjusted performance potential versus traditional beta. A desire to replace, complement or consolidate active managers. An effective replacement for certain active positions, access to many of the same premia active managers seek, often with lower costs and reduced ongoing oversight requirements. A philosophy that having too many active managers with the same mandates can result in index-like returns for a particular asset class. Access to investment strategies that lie in-between active and traditional index strategies, with the potential to outperform cap-weighted indexes at a lower cost than active management. A need to manage assets with a specific goal in mind, such as limiting downside risk in an overall portfolio or lowering the volatility of your portfolio. Flexibility to potentially capture specific returns or risk properties that are more closely aligned with portfolio goals. 4

5 CAPTURING SPECIFIC EQUITY RISK PREMIA OR FACTOR EXPOSURE A Valued Partner for Beta Solutions State Street Global Advisors is one of the largest providers of index and rules-based strategies in the world, with more than $2.56 trillion 2 in assets under management worldwide. Our smart and alternative beta equity strategies alone represent more than $88 billion 2 of assets. Drawing upon over 35 years of indexing experience and efficient trading operations, we can offer high-quality, cost-effective beta solutions. After pioneering the development of ETFs in 1993, our SPDR ETFs brand has become a market leader, with one of the broadest ranges of ETFs in the industry. Our smart beta SPDR ETFs can provide investors with unique opportunities to take advantage of sources of outperformance relative to standard cap-weighted indexes combined with the benefits of exchangetraded funds. Not Just for Equities: Fixed Income Smart Beta Fixed income smart beta has taken longer to come of age than equities, partly due to the less exchange-based nature of the fixed income transaction process. However, in recent years the bond landscape has changed significantly in terms of sovereign risk and yield, with core 10-year bond yields remaining close to historical lows. In addition, new approaches to fiscal discipline, bond investor-friendly ratio scored weighting, and fixed income factor-based investing are all contributing to a rising appetite for innovation among fixed income investors. The timing seems ripe, therefore, for fixed income smart beta strategies to step up. With innovation in this area likely to increase, investors can look forward to a whole new set of opportunities. Our smart beta equity strategies can give you the ability to tilt towards or capture specific factor exposures in your portfolio. The European SPDR ETFs range includes funds that feature the following factor exposures: QUALITY* VALUE VOLATILITY Stocks that consistently pay dividends over a number of years tend to be higher quality companies with stable fundamentals. Our dividend-based ETFs are weighted according to the highest yielding dividend stocks, but also filter stocks according to whether a company has sustained or increased its dividends over a number of years. This balance between dividend yield and dividend sustainability can potentially help lower portfolio volatility and reduce average drawdowns over time. Value stocks are those that trade at a lower price than their fundamentals, such as earnings or sales, would imply. They have been shown to outperform the broader market indices over the long term. Our value SPDR ETFs are based on several financial metrics, such as sales, book value, earnings and cash earnings in order to provide a comprehensive measure of value. Our low volatility ETFs are weighted according to the volatility of the underlying stocks rather than their market capitalisation, thereby providing some protection against market downturns. They can generate higher returns than cap-weighted strategies over the long term the so-called low volatility premium. 2 Source: State Street Global Advisors as of 31 March * While we do not currently market funds that capture exposure to the Quality factor, dividend exposures are often tilted towards this factor over the long term. AUM reflects approx. $34 billion (as of June 30, 2017) with respect to which State Street Global Advisors Funds Distributors, LLC serves as marketing agent; State Street Global Advisors Funds Distributors, LLC and State Street Global Advisors are affiliated. State Street Global Advisors 5

6 Complete Guide to Smart Beta BUILDING MORE EFFICIENT PORTFOLIOS SPDR ETFs feature both the front-end capabilities to build portfolios with specific objectives in mind, as well as the back-end trading and operational efficiencies of one of the world s largest managers of beta strategies. It means investors can construct smart beta portfolios that are both well conceived and efficiently implemented. Factor Tilt ISIN Geographic Focus TER Quality Value Volatility Equities SPDR S&P Emerging Markets Dividend UCITS ETF IE00B6YX5B26 Emerging Markets 0.55 x SPDR S&P Euro Dividend Aristocrats UCITS ETF IE00B5M1WJ87 Europe 0.30 x SPDR S&P Global Dividend Aristocrats UCITS ETF IE00B9CQXS71 Global 0.45 x SPDR S&P Pan Asia Dividend Aristocrats UCITS ETF IE00B9KNR336 Asia 0.55 x SPDR S&P UK Dividend Aristocrats UCITS ETF IE00B6S2Z822 UK 0.30 x SPDR S&P US Dividend Aristocrats UCITS ETF IE00B6YX5D40 US 0.35 x SPDR MSCI Europe Small Cap Value Weighted UCITS ETF IE00BSPLC298 Europe 0.30 x SPDR MSCI USA Small Cap Value Weighted UCITS ETF IE00BSPLC413 US 0.30 x SPDR MSCI Europe Value Weighted UCITS ETF IE00BSPLC306 Europe 0.25 x SPDR MSCI USA Value Weighted UCITS ETF IE00BSPLC520 US 0.25 x SPDR EURO STOXX Low Volatility UCITS ETF IE00BFTWP510 Europe 0.30 x SPDR S&P 500 Low Volatility UCITS ETF IE00B802KR88 US 0.35 x For full details on our SPDR ETF range, including exchange listings and ticker information, please visit our website spdrs.com 6

7 For nearly four decades, State Street Global Advisors has been committed to helping financial professionals and those who rely on them achieve their investment objectives. We partner with institutions and financial professionals to help them reach their goals through a rigorous, research-driven process spanning both active and index disciplines. We take pride in working closely with our clients to develop precise investment strategies, including our pioneering family of SPDR ETFs. With trillions* in assets under management, our scale and global footprint provide unrivaled access to markets and asset classes, and allow us to deliver expert insights and investment solutions. State Street Global Advisors is the investment management arm of State Street Corporation. * Assets under management were $2.6 trillion as of June 30, AUM reflects approx. $34 billion (as of June 30, 2017) with respect to which State Street Global Advisors Funds Distributors, LLC serves as marketing agent; State Street Global Advisors Funds Distributors, LLC and State Street Global Advisors are affiliated. Bloomberg Page Enter SPDR <GO> to find us on Bloomberg. Contact Us Visit spdrs.com Contact our SPDR ETFs Sales and Support team at spdrseurope@ssga.com or +44 (0) Or call your local SPDR ETFs representative. Benelux +31 (0) France +33 (0) Germany +49 (0) Nordics +32 (0) Switzerland +41 (0) United Kingdom +44 (0) Ireland +353 (0) Italy

8 ssga.com spdrs.com For Professional Clients/Qualified Investors Use Only. For regulated qualified investors according to Art. 10 (3) lit. a and b of the Swiss Capital Investment Schemes Act only. For Investors in Finland: The offering of funds by the Companies has been notified to the Financial Supervision Authority in accordance with Section 127 of the Act on Common Funds ( /48) and by virtue of confirmation from the Financial Supervision Authority the Companies may publicly distribute its Shares in Finland. Certain information and documents that the Companies must publish in Ireland pursuant to applicable Irish law are translated into Finnish and are available for Finnish investors by contacting State Street Custodial Services (Ireland) Limited, 78 Sir John Rogerson s Quay, Dublin 2, Ireland. For Investors in France: This document does not constitute an offer or request to purchase shares in the Companies. Any subscription for shares shall be ade in accordance with the terms and conditions specified in the complete Prospectuses, the KIID, the addenda as well as the Companies Supplements. These documents are available from the Company centralizing correspondent: State Street Banque S.A., rue Delariviere- Lefoullon, Paris La Defense Cedex or on the French part of the site spdrs.com. The Companies re undertakings for collective investment in transferable securities (UCITS) governed by Irish law and accredited by the Central Bank of Ireland as a UCITS n accordance with European Regulations. European Directive no. 2009/65/CE dated 13 July 2009 on UCITS, as amended, established common rules pursuant to the cross-border marketing of UCITS with which they duly comply. This common base does not exclude differentiated implementation. This is why a European UCITS can be sold in France even though its activity does not comply with rules identical to those governing the approval of this type of product in France. The offering of these compartments has been notified to the Autorité des Marchés Financiers (AMF) in accordance with article L of the French Monetary and Financial Code. For Investors in Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered number Member of the Irish Association of Investment Managers. T: 353 (0) F: 353 (0) For Investors in Italy: State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP , and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number R.E.A and VAT number and whose office is at Via dei Bossi, Milano, Italy. T: F: For Investors in Germany: The offering of SPDR ETFs by the Companies has been notified to the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) in accordance with section 312 of the German Investment Act. Prospective investors may obtain the current sales Prospectuses, the articles of incorporation, the KIIDs as well as the latest annual and semi-annual report free of charge from State Street Global Advisors GmbH, Brienner Strasse 59, D Munich. Telephone +49 (0) Facsimile +49 (0) For Investors in Luxembourg: The Companies have been notified to the Commission de Surveillance du Secteur Financier in Luxembourg in order to market their shares for sale to the public in Luxembourg and the Companies are notified Undertakings in Collective Investment for Transferable Securities (UCITS). For Investors in the Netherlands: This communication is directed at qualified investors within the meaning of Section 2:72 of the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht) as amended. The products and services to which this communication relates are only available to such persons and persons of any other description should not rely on this communication. Distribution of this document does not trigger a licence requirement for the Companies or SSGA in the Netherlands and consequently no prudential and conduct of business supervision will be exercised over the Companies or SSGA by the Dutch Central Bank (De Nederlandsche Bank N.V.) and the Dutch Authority for the Financial Markets (Stichting Autoriteit Financiële Markten). The Companies have completed their notification to the Authority Financial Markets in the Netherlands in order to market their shares for sale to the public in the Netherlands and the Companies are, accordingly, investment institutions (beleggingsinstellingen) according to Section 2:72 Dutch Financial Markets Supervision Act of Investment Institutions. For Investors in Norway: The offering of SPDR ETFs by the Companies has been notified to the Financial Supervisory Authority of Norway (Kredittilsynet) in accordance with applicable Norwegian Securities Funds legislation. By virtue of a confirmation letter from the Financial Supervisory Authority dated 16 October 2013 the Companies may market and sell their shares in Norway. For Investors in Switzerland: This document is directed at regulated qualified investors only, as defined by Article 10(3) lit. a and b. of the Swiss Act on Collective Investment Schemes (CISA). Certain of the funds may not be registered for public sale with the Swiss Financial Market Supervisory Authority (FINMA) which acts as supervisory authority in investment fund matters and might not qualify as foreign Collective Investment Schemes under Article 120 of the Collective Investment Schemes Act. Accordingly, the shares of those funds may only be offered to regulated qualified investors and not be offered to any other investor in or from Switzerland unless they are placed without public solicitation as such term is defined by FINMA from time to time. Before investing please read the prospectus and the KIID. In relation to those funds which are registered with FINMA, prospective investors may obtain the current sales prospectus, the articles of incorporation, the KIIDs as well as the latest annual and semi-annual reports free of charge from the Swiss Representative and Paying Agent, State Street Bank International GmbH, Munich, Zurich Branch, Beethovenstrasse 19, 8027 Zurich, or at spdrs.com, as well as from the main distributor in Switzerland, State Street Global Advisors AG ( SSGA AG ), Beethovenstrasse 19, 8027 Zurich. For additional documentation regarding those funds not registered for public sale, please contact SSGA AG. For Investors in the UK: The Companies are recognised schemes under Section 264 of the Financial Services and Markets Act 2000 ( the Act ) and are directed at professional clients in the UK (within the meaning of the rules of the Act) who are deemed both knowledgeable and experienced in matters relating to investments. The products and services to which this communication relates are only available to such persons and persons of any other description should not rely on this communication. Many of the protections provided by the UK regulatory system do not apply to the operation of the Companies, and compensation will not be available under the UK Financial Services Compensation Scheme. Important Information This document has been issued by State Street Global Advisors Limited ( SSGA ). Authorised and regulated by the Financial Conduct Authority. Registered No VAT No Registered office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. Telephone: Facsimile: Web: ssga.com SPDR ETFs is the exchange traded funds ( ETF ) platform of State Street Global Advisors and is comprised of funds that have been authorised by European regulatory authorities as open-ended UCITS investment companies ( Companies ). SSGA SPDR ETFs Europe I and II plc issue SPDR ETFs, and is an open-ended investment company with variable capital having segregated liability between its sub-funds. The Company is organised as an Undertaking for Collective Investments in Transferable Securities (UCITS) under the laws of Ireland and authorised as a UCITS by the Central Bank of Ireland. This document is not, and under no circumstances is to be construed as, an offer or any other step in furtherance of a public offering in the United States, Canada or any province or territory thereof, where the Companies are not authorised or registered for distribution and where the Companies prospectuses have not been filed with any securities commission or regulatory authority. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States. The Companies have not and will not be registered under the Investment Company Act of 1940 or qualified under any applicable state securities statutes. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. The information provided does not constitute investment advice as such term is defined under the Markets in Financial Instruments Directive (2004/39/EC) or applicable Swiss regulation and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any investment. It does not take into account any investor s or potential investor s particular investment objectives, strategies, tax status, risk appetite or investment horizon. If you require investment advice you should consult your tax and financial or other professional advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of he information and State Street shall have no liability for decisions based on such information. Exchange traded funds (ETFs) trade like stocks, are subject to investment risk and will fluctuate in market value. The value of the investment can go down as well as up and the return upon the investment will therefore be variable. Changes in exchange rates may have an adverse effect on the value, price or income of an investment. Further, there is no guarantee an ETF will achieve its investment objective. Diversification does not ensure a profit or guarantee against loss. Value stocks can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time. Companies with large market capitalisations go in and out of favour based on market and economic conditions. Larger companies tend to be less volatile than companies with smaller market capitalisations. In exchange for this potentially lower risk, the value of the security may not rise as much as companies with smaller market capitalisations. Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions. Investing in foreign domiciled securities may involve risk of capital loss from unfavourable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations. 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 SSGA s express written consent. A Smart Beta strategy does not seek to replicate the performance of a specified cap-weighted index and as such may underperform such an index. The factors to which a Smart Beta strategy seeks to deliver exposure may themselves undergo cyclical performance. As such, a Smart Beta strategy may underperform the market or other Smart Beta strategies exposed to similar or other targeted factors. In fact, we believe that factor premia accrue over the long term (5-10 years), and investors must keep that long time horizon in mind when investing. There is no guarantee that the stocks in the portfolio will continue to declare dividends and if they do, that they will remain at current levels or increase over time. Low volatility funds can exhibit relative low volatility and excess returns compared to the Index over the long term; both portfolio investments and returns may differ from those of the Index. The fund may not experience lower volatility or provide returns in excess of the Index and may provide lower returns in periods of a rapidly rising market. Active stock selection may lead to added risk in exchange for the potential outperformance relative to the Index. A quality style of investing emphasizes companies with high returns, stable earnings, and low financial leverage. This style of investing is subject to the risk that the past performance of these companies does not continue or that the returns on quality equity securities are less than returns on other styles of investing or the overall stock market. Investments in mid-sized companies may involve greater risks than in those of larger, better known companies, but may be less volatile than investments in smaller companies. The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data. This communication is directed at professional clients (this includes eligible counterparties as defined by the Appropriate EU Regulator or applicable Swiss regulator) who are deemed both knowledgeable and experienced in matters relating to investments. The products and services to which this communication relates are only available to such persons and persons of any other description (including retail clients) should not rely on this communication. The information contained in this communication is not a research recommendation or `investment research and is classified as a `Marketing Communication in accordance with the European Communities (Markets in Financial Instruments) Regulations 2007 or applicable Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.. While diversification does not ensure a profit or guarantee against loss, investors in Smart Beta may diversify across a mix of factors to address cyclical changes in factor performance. However, factors may have high or increasing correlation to each other. The views expressed in this material are the views of SPDR EMEA Strategy Research Team through the period ended 31 May 2017 and are subject to change based on market and other conditions Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries. Investments in small-sized companies may involve greater risks than in those of larger, better known companies. The financial products referred to herein are not sponsored, endorsed, or promoted by MSCI and MSCI bears no liability with respect to any such financial products or any index on which such financial products are based. The Prospectus contains a more detailed description of the limited relationship MSCI has with SSGA and any related financial products. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. The Russell 3000 Index and Russell 2000 Index are a trademark of Russell Investment Group. STOXX and its licensors (the Licensors ) have no relationship to State Street Global Advisors Limited (the Licensee ), other than the licensing of the EURO STOXX Low Risk Weighted 100 Index and the related trademark for use in connection with the Fund. Standard & Poor s, S&P and SPDR are registered trademarks of Standard & Poor s Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation s financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index. Investing involves risk including the risk of loss of principal. You should obtain and read the Companys Prospectuses prior to investing. Prospective investors may obtain the current Prospectuses, the articles of incorporation, the Key Investor Information Documents (KIIDs) as well as the latest annual and semi-annual reports free of charge from State Street Global Advisors, or from spdrs.com 2017 State Street Corporation. All Rights Reserved. ID9878-IBGE Exp. Date: 31/08/2018