If you’re a beginner investor, an asset management firm can help with the day-to-day oversight of your investments. What many investors misunderstand is that not all asset management firms provide the same benefits and operate with the same level of expertise. That means it’s wise to take time to locate the best asset management firm possible before you trust anyone with your money.
This article examines ways to identify the right asset management firm for you. We’ve determined the three critical offerings top firms share so you can feel more confident as you search for a top asset management company.
What Do Top Asset Management Firms Do?
Asset management firms are companies that invest clients’ money and shift their assets strategically. These firms often group assets together to create exchange-traded funds (ETFs), manage mutual funds, and give investors access to stocks, bonds, or other securities.
Because asset management firms are in charge of grouping assets, they can influence an ETF or fund’s overall risk. For instance, if a firm is grouping an ETF with highly correlated assets and passing it off as diversified, it could expose you to high risk if the market or a sector swings. In short, the way an asset management firm builds or manages financial packages may influence your investments.
At the same time, top asset management firms tend to know how to spot market advantages and headwinds that other firms may not recognize. In understanding financial structures and markets on a higher level, they may be able to better protect investments or provide financial opportunities that other companies overlook.
3 Traits Excellent Asset Management Companies Hold
Simply being in the top 100 asset management firms or operating with a large budget may not necessarily position a company perfectly for your investing strategy. Instead, it could be advantageous to evaluate asset management firms more critically and on a case-by-case basis. Here are the top traits we believe top asset management firms share and the advantages of each:
1. History and Experience
Top asset management firms tend to be staffed with experienced portfolio managers and leaders who have a proven history of compliance. This means they may be less likely to skirt the rules and expose your investments to unnecessary risk. It also means they will understand how to navigate a broader range of financial conditions.
Additionally, the best asset management firms tend to operate with a fiduciary mindset. That means their strategies aren’t built around their interests. Instead, they will make decisions that are in your best interest as an investor.
Also, many top asset management firms help guide investors through education. The best firms share insights, tools, and educational materials, empowering their investors. That way, the investor learns to advance, evolve, and act out more informed financial decisions.
2. Access to Active and Passive Options
Active and passive investing strategies each have unique advantages. Passive funds tend to carry low fees, so they allow investors to tap into a wider pool of the market. Investing in passive ETFs can naturally spread out risk across assets, so it might also allow investors to diversify a portfolio at a relatively low cost. One caveat: some passive ETFs track an index and are only as diversified (or sometimes less diversified) as that underlying index. This is particularly true with ‘thematic’ ETFs that, while investing in more than one asset, are narrowly focused in their investment choices so top firms will have a variety of these types of investments.
Active ETFs also spread risk across a full bucket of assets, but they’re driven by a different investing strategy. These ETFs allow investors to lean on a portfolio manager’s expertise and shift their investments to leverage changing market trends.
The best asset management firms tend to give you both active and passive investing tools. A blended approach allows you to access the best of two worlds, in which you’re taking advantage of experienced portfolio managers and anchoring your portfolio in lower-cost investments.
In either case, it’s important to keep in mind that diversification does not assure profit, nor does it always protect against loss.
3. Innovative Product Offerings
As an investor, the more access to new opportunities you have, the easier it is to secure financial advantages. That’s why many of the best asset management firms are innovative and constantly providing new product offerings. Here are a few recent examples of new types of investment opportunities that many top investment firms are now offering or considering:
- Semi-transparent and non-transparent ETFs: With traditional ETFs, asset management teams will post holding reports daily. However, non-transparent ETFs allow managers to reveal specific investments less often. Instead of detailing holdings and trades daily, they might provide an overview of their bucket of stocks on a quarterly or monthly basis. This approach lets asset management firms hide their strategies from the public eye. That way, it’s easier to avoid a situation in which the public floods their holdings or disrupts their strategy.
- Converting SMAs into ETFs: Innovative asset management companies are now converting separately managed accounts (SMAs) into ETFs. With SMAs, the investor asks a professional to invest in a group of securities that fit into their investing strategy, values, or goals. Then the financial manager assembles a custom bucket of securities for the investor. By converting custom SMAs into ETFs, more investors can access the benefits of a shared investing philosophy or set of values, and investors can lean on the tax-efficient, low-cost structure of ETFs.
In addition to being innovative, it can be an advantage for firms to lay out a broad range of investment opportunities for clients. For instance, rather than simply providing ETF services, a top asset management fund may give investors the option to invest in more specialized types of ETFs, such as:
Overall, when your firm provides more in-depth investing opportunities and a broader range of financial tools, you may be able to execute your investing strategy effectively.
Make Smarter Investing Decisions
Choosing the right asset management firm can be a crucial step toward smart investing. However, there are more ways to increase your investing expertise. Subscribe to our blog to get the latest investing tips and insights from the experts.