Legg Mason’s quant arm finds ETFs ‘very valuable’

Nick Hooten, Legg Mason

QS Investors is one of nine subsidiary firms of Legg Mason, and is where the quantitative solutions for institutional investors are found. The majority of its USD15 billion in assets is in quant solutions which marry the firm’s research to client needs, says Nick Hooten, Head of Investment Solutions, at the firm. Hooten will be joining the ETFs in Depth panel at etfLIVE US in October this year.

“Being quantitative, allows us to offer clients the best opportunity to reach the specific outcomes they desire,” Hooten says. The firm has a broad range of clients which encompasses a number of different channels, including insurance and retirement companies who have specific and: “interesting requirements,” Hooten says. The firm also creates a number of models for broker/dealers to use, bringing institutional grade asset allocation to the adviser community.

QS Investors uses a lot of ETFs. “Over half of our strategies incorporate ETFs,” Hooten says. “We use ETFs for two distinct purposes. We use them to either provide specific asset or factor exposures in our strategic asset allocations and for liquidity in the implementation of our tactical asset class views and volatility-managed strategies.””

Hooten observes that ETFs have grown so much over the last 10 years, with a huge amount of innovation in the space. “We can find most of the exposures that we need to implement our portfolios and are currently contemplating how we’d use more thematic ETFs in our portfolios”.

Hooten is waiting and watching to see how thematic ETFs grow. “It will be important to understand how they fit into a portfolio structure and how they interact with other asset classes.”

The first part of the year saw the firm trading a great deal in ETFs as market volatility triggered de-risking across some of the firm’s volatility-managed strategies.

“We had no issues trading ETFs because we are trading the most highly liquid ETFs out there,” Hooten says.

“For us it’s a simple execution equation dependant on the volume of the ETF and the spreads associated with it. We are hesitant to trade into ETFs that do not meet our specific trading criteria.”

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Beverly Chandler
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