Investing

Institutional Asset Owners Increasingly Interested in Smart Beta

The largest rise in smart beta adoption this year is among asset owners with $1 to $10 billion in assets under management.

By PLANSPONSOR staff editors@plansponsor.com | May 22, 2017

FTSE Russell has found a new high in global smart beta index adoption and continued strong interest in smart sustainability and multi-factor indexes from global institutional asset owners.

According to “Smart beta: 2017 global survey findings from asset owners.” the global research team at FTSE Russell confirms that the percentage of asset owners reporting an existing smart beta index allocation has reached a new peak of 46%, up from 36% last year. The trend over the past three years shows that increasing global growth and adoption of smart beta is continuing in 2017.                         

Adoption in Europe is still greater than North America and Asia Pacific, with 60% of asset owners reporting an allocation. Notably, the largest rise in smart beta adoption this year is among asset owners with $1 to $10 billion in assets under management (AUM). This contrasts with last year, when the largest rise in smart beta adoption came from asset owners with less than $1 billion.

Results from this year’s survey also detail strong interest in applying environmental, social and governance (ESG) considerations to smart beta, known as smart sustainability. In North America and Europe, interest in smart sustainability index-based strategies is greatest among asset owners with AUM greater than $10 billion. Yet regional differences persist; within this size tier, nearly 80% of asset owners domiciled in Europe anticipate applying ESG considerations to a smart beta strategy, while 30% of asset owners domiciled in North America do.

The survey further highlights that the primary motivations of the asset owners surveyed are investment decision-led rather than driven by regulatory requirements or societal goals. Return enhancement and risk reduction persist as the primary objectives expressed by those surveyed for use of smart beta. Cost savings continues to grow in importance.

Smart beta index adoption rates increased from 2016 to 2017; now, nearly half of asset owners surveyed have a smart beta index allocation. Adoption growth was fed by strong numbers of smart beta evaluators observed in 2016. Findings suggest that the pipeline of asset owners evaluating smart beta remains strong and is comprised of first-time evaluators, re-evaluators, and asset owners considering adding to an existing smart beta allocation.

This year, multi-factor smart beta combinations have become the most popular smart beta index construction used; they are also the most widely evaluated smart beta index. Among single factor methodologies, Value and Low Volatility are most widely used and evaluated.

FTSE Russell’s survey was conducted in January and February 2017 among 194 global asset owners. Participants were from North America (43%), Europe (32%), Asia Pacific (19%) and other regions (5%).

The report may be downloaded from here. A free registration is required.

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