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More U.S. Institutional Investors are Adopting ETFs, While Smart Beta Rises

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New research out of Deutsche Bank indicates that exchange-traded funds (ETFs) are primarily funded by U.S. institutional investors, accounting for US$ 2 trillion of the US$ 3.3 trillion total allocated to the funds. This is a 40 % increase from the numbers just two years ago, in 2016. Deutsche Bank strategist Chin Okoro notes, “Institutions are increasingly using ETFs as vehicles for more sophisticated portfolio solutions.”

The SPDR S&P 500 ETF (SPY) is the most popular, with US$ 185 billion of its investment coming from institutional investors. Other in-demand ETFs include the iShares Core S&P 500 ETF (IVV), iShares MSCI EAFE ETF (EFA), Vanguard FTSE Developed Markets ETF (VEA), and Vanguard FTSE Emerging Markets ETF (VWO). Smart beta funds are also gaining ground as the ETF universe matures.

Smart Beta Continues to Rise

Smart beta funds or factor-based ETFs, a type of fund that uses alternative index construction rules instead of the typical market cap-weighted index strategy, are also gaining adoption by pensions, sovereign wealth funds and insurance companies. At the end of 2017, smart beta funds had surpassed US$ 1 trillion in assets for the first time. The low cost of managing the funds makes them especially attractive for investors. A smart beta fund’s offering of intentionally-chosen, diversified holdings could spell trouble for active managers. Recently, Janus Henderson CEO Richard “Dick” Weil suggested as much on Bloomberg TV, and he vowed to make the case that actively managed funds could still provide a higher return than passive funds. Goldman Sachs, State Street, Franklin Templeton, and Fidelity International have all launched smart beta funds in recent years.

GIC Supports CapitaLand Shanghai Investment on Haimen Road

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GIC Private Limited, Singapore’s sovereign wealth fund, has entered into a 50:50 joint venture with Raffles City China Investment Partners III (RCCIP III), a fund controlled by CapitaLand. The joint venture is acquiring Shanghai’s tallest twin towers for an aggregate consideration of RMB 12.8 billion (US$ 1.84 billion). The property is located in Shanghai’s core Central Business District.

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Wells Fargo Could be Slimming Down, Possible Retirement Unit Sale

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Wells Fargo (WFC) is looking to exit the retirement plan servicing market, for a potential sale price of US$ 1 billion. The unit is involved in record-keeping, custody, trust details and various other retirement plan services for corporations. It is housed under the Wealth and Investment Management unit. The retirement plan servicing market is not particularly compelling for the bank, especially in light of the U.S. Department of Labor’s newer regulations to force managers to disclose compensation arrangements and fees to plan fiduciaries. Wells Fargo has been lauded for its loyal consumer base and high revenue, and doesn’t require the business, though recent scandals have been a drag on the company’s profitability and public image. This news has pre-empted some advisors to jump ship. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Mubadala Petroleum Signs Deal to Buy Interest in Nour North Sinai Offshore Area Concession

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Mubadala Petroleum, a division of Mubadala Investment Company, signed a deal to acquire a 20% percent participating interest in Egypt’s Nour North Sinai Offshore Area concession. The seller of the interest is a subsidiary of the Italian energy giant Eni. Eni holds an 85% stake in the partnership with Tharwa Petroleum Company, which holds a 15 percent interest. Formed in 2004, Tharwa Petroleum Company is 100% owned by the Egyptian government through a variety of state-owned entities such as the Egyptian General Petroleum Corporation (EGPC) at 20% and Egyptian National Gas Holding Company (EGAS) at 20%.

The sales transaction is subject to conditions, such as approval from government authorities in Egypt.

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