A firm that thinks it is possible to consistently win that sought-after "Alpha" certainly appears to be winning friends, judging by a rapid AuM growth in recent years.

In the debate about whether it is possible to capture market-beating Alpha in a systematic way that can be done inexpensively for clients, a firm very much in the camp favoring this approach is Symmetry Partners, an East Coast firm working with wealth advisors.

“Factor investing” is all the rage. There have been a number of firms offering “Smart Beta” exchange traded funds and investment products that aim to collect returns driven by a factor such as volatility, yield, quality, size, momentum or value. But with the US equity bull market in its ninth year, and arguably overdue for a correction particularly if US interest rates are headed up, questions could be asked about how robust such investment styles are when the going gets rough.

“The big demand is that advisors want to tell the factor story in a way that is easy for the client to understand,” Tom Romano, director of strategic relations at Symmetry, told Family Wealth Report in a recent call.

Symmetry, located in Glastonbury, CT, was founded by David Connelly and Patrick Sweeny in 1994. It works with registered investment advisors and others looking after wealthy clients. This firm also works with individual investors and plan sponsors. 

The firm has made a few waves recently. Last year, for example, it brought in former BlackRock director Timothy Baker as director of product strategy, among a series of other hires. Baker is responsible for overseeing Symmetry’s entire product suite, with a focus on developing the firm’s next generation of factor-based ETF models. Eric Krusiewicz joined as a senior investment strategist from Colonial Consulting. The firm also added three regional business consultants - Bob Matala from Envestnet, Nathaniel Poole from Jackson National Life.

Extreme diversity
The firm says on its website that it “doesn’t subscribe to the conventional wisdom of Wall Street” and brings in academic thinking to figure out how to systematize investment outperformance (that “Alpha) and do so without the high fees that traditional active management often brings. Investment portfolios take the form either of open-ended funds or ETFs.

“We build our portfolios with an eye towards extreme diversification,” Romano continued, saying that the firm’s investment methodology does not involve trying to pick market levels or make guesses about future direction. To illustrate how wide it spreads the net, Symmetry encompasses 15 asset classes, around 8,500 to 12,000 stocks and hold equities in around 50 countries.

The approach appears to be winning fans. Back in 2006, for example, Symmetry oversaw about $1.8 billion of client funds. At the start of this year, the figure was $8.2 billion. And the firm’s payroll has quintupled since 2006 to 105 people. And there is plenty of growth ahead for a firm with such a business model, Romano said. The firm charges fees but does not take commission payments; fees are based on percentage of assets under management, so that AuM growth of recent years is clearly pleasing to the firm’s owners.

And talk of business models raises the issue of how Symmetry is positioned for changes to how wealth advisors in the US charge clients for advice. While the Department of Labor Fiduciary Rule has been delayed, pressure on wealth managers to charge fees for advice and move away from traditional commission-related revenues continues. Romano said regardless of what regulatory authorities intend to do, putting clients’ best interests first was “good business” anyway.

Symmetry isn’t afraid to wade into areas of controversy. In a white paper published on its website, Symmetry looks at a run of recent ETF closures involving Smart Beta funds. On June 30, for example, ETFs comprising $660 million of assets had closed, compared with $1.4 billion for the whole of 2015. The affected ETFs were of different types, such as market-capitalisation ETFs through to Smart Beta ETFs. Symmetry argued that the Smart Beta space has become complex and a reason why some investors have grown wary. Part of the problem, it says, is that there is a lack of hard agreement on what Smart Beta is, as well as the influence of marketing in pushing the concept at the expense of investor understanding. 

Asked about this sort of issue of complexity and range of product, Romano added: “There’s always been a lot of options: there are thousands of mutual funds and investment philosophies. This can of course cause confusion and complexity, but that’s why we recommend working with a financial advisor. Having a large variety of choices increases competition, which will lower prices on ETFs, which benefits investors.”

The question, of course, is how and whether such rapid growth in systematic Alpha-generating strategies can work if or when global stocks take a turn for the worse.