Institutional investors are making more use of so-called “smart beta” strategies, suggests new research from FTSE Russell.
Specifically, institutional investors are reporting a “significantly increased” interest in, and adoption of, multiple smart beta indices, according to a new global institutional market survey. In fact, the survey found that 55% of respondents are now allocating more than 10% to smart beta strategies, up from 38% in 2014.
In addition, the use of multiple smart beta strategies has grown as 71% of respondents are using more than one strategy, up from 59% in 2014, and 22% are using four or more strategies, the FTSE Russell survey says. “These differences highlight a growing allocation to smart beta strategies and the survey also reveals movement toward combining multiple factor and strategy indices.”
The leading adopters of smart beta indices are European asset owners, with US$10 billion or more in AUM, the survey reports. In addition, 79% of European asset owners have evaluated smart beta indices and only 2% did not anticipate evaluating them in the next 18 months. In North America, 61% of asset owners have evaluated smart beta and just 23% did not expect to evaluate it in the next 18 months.
Exchange-traded funds (ETFs) are preferred for the implementation of smart beta by 43% of respondents globally, the FTSE Russell survey reveals.
“Smart beta indices have given asset owners and their consultants more choice and greater flexibility in the tools available for constructing portfolios with an outcome-oriented focus. But increases in choice and flexibility mean that investors require more information as they work to make their decisions,” said Rolf Agather, managing director of North America research for FTSE Russell. “Institutional asset owners are increasingly using more smart beta indices and in a variety of new ways. This is outstanding for the industry, but reinforces the need for further education, information and advice.”
The second annual survey of 214 asset owners predominantly from North America (61%) and Europe (26%), whose total assets under management (AUM) is estimated to be more than $2 trillion, was conducted in January and February.