Principal’s Kim Seeks to Outsmart Rivals After Moving From PimcoBy
Growth in ETFs to come from more-specialized areas, Kim says
Kim seeking a niche apart from rivals BlackRock, Vanguard
When you’re late to the party, you need something special to attract attention.
That’s what Principal Financial Group Inc.’s Paul Kim is deciding as he builds the insurer’s exchange-traded fund business. Hired last year from Pacific Investment Management Co., Kim knows he’s operating in a highly competitive environment. So to differentiate his firm, he’s betting on more-specialized strategies and steering clear of wagers made by deep-pocketed competitors such as BlackRock Inc. and Vanguard Group.
“The next phase of growth in ETFs will be on the active side and the strategic beta side, so we’re positioning ourselves for the growth ahead,” Kim said Wednesday in an interview at Bloomberg headquarters in New York. With Principal entering an ETF market that’s already over $3 trillion, Kim said that the firm “can’t do product development in a
Kim is leading Principal’s charge into ETFs, which he called a natural complement to the mutual funds that the Des Moines, Iowa-insurer already offers. He started the Principal Shareholder Yield Index ETF in March, which focuses on companies that generate shareholder value through dividends, stock buybacks and cash flow, and has built ETFs that focus on millennials’ buying habits and early-stage health companies.
Early movers into the industry including BlackRock built offerings that made broad bets, including on high-yield debt or emerging markets. New entrants must offer distinct options or be forced to compete on price, a move that Kim said he didn’t prefer.
“It’s been a market based on broad exposures, cheap beta, and that game is already won by the Vanguards, BlackRocks, State Streets of the world,” Kim said. He said he sees growth ahead that is “focused on your outcomes, on your after-fee performance, on things that drive active strategies.”
Kim works for Principal Global Investors, the firm’s $382 billion asset manager. The Principal Shareholder Yield Index ETF returned 1.9 percent over the past three months. The Principal Price Setters Index ETF, which bets on firms with quality earnings and profitability, gained 3.2 percent in the period, according to data compiled by Bloomberg.
Investors including Warren Buffett have derided the call for active management, saying many savers should employ passive strategies to keep costs down. Easing by central banks globally over the past few years gave a boost to those type of strategies, Kim said, noting that he doesn’t believe that trend will continue.
“In that environment, being cheapest is actually the best way to outperform,” Kim said. “As that central bank policy changes, and some of that easing goes away, all of a sudden you’re going to start looking more fundamentally at asset classes and companies and sectors.”