Three-quarters of institutional investors in North America,
Europe and the Asia-Pacific region are using or considering
smart beta strategies for their portfolios, as the investment
trend continues to gain popularity globally, according to an
annual FTSE Russell survey.
The global index and data providers survey of almost
200 asset owners found that investors are using smart beta to
improve returns and diversification, as well as to save on
fees. Only 9 percent of allocators decided against the strategy
after seriously considering it, according to the firms
report released Monday.
Four to five years ago, some people said this was a
flash in the pan, but were seeing continued strength in
smart beta, Rolf Agather, FTSE
Russells managing director of research for North America,
said in an interview.
Smart beta is based on academic research into the sources of
stock and bond returns, with investors screening for such
factors as low volatility and value to increase their gains.
Smart beta strategies are expanding while becoming more popular globally.
Forty-six percent of investors surveyed said they already
have an allocation to category, with 71 percent of those who
adopted smart beta in the last two years opting for strategies
that use a combination of multiple factors. Agather says the
growing popularity of multi-factor smart beta was one of the
biggest changes from previous surveys, outpacing the growth of
fundamental indexes, one of the earliest versions of these
types of strategies.
The shift is likely because fundamental indexes are some of
the oldest smart beta investments, and represent a more mature
category, according to Agather.
Fixed-income smart beta is still nascent, he said, and FTSE
Russell included questions on the asset class for the first
time this year. Seventy-three percent of respondents said they
were not evaluating fixed-income and had no plans to do so,
while 7 percent said they had made an allocation.
Agather says institutional investors are not as bullish on
fixed-income in part because there isnt as much academic
and third-party research on factors in credit and bonds, and
there are also fewer managers in the market with products. FTSE
Russell expects fixed-income smart beta to grow as research
evolves and more players enter the market.
FTSE Russell also gauged investors attitudes toward
environmental, social and governance (ESG) smart beta for the
first time this year. European asset owners are keenest,
representing 60 percent of global investors interested in
applying ESG considerations to their smart beta strategies.
That compares with only 20 percent of North American
allocators. Meanwhile, three-quarters of respondents who plan
to apply ESG to smart beta are looking at ESG to avoid
long-term risk and increase returns, not just as a societal good.
That makes sense, said Agather. Most
fiduciaries have to point to an investment outcome.