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Fourth Annual FTSE Russell Global Institutional Smart Beta Survey Marks Peak In Adoption And Rising ESG Interest

Date 22/05/2017

  • Trend of asset owners reporting an existing smart beta allocation has risen to 46% (a new peak), with 63% of those with an existing smart beta allocation evaluating additional strategies based on smart beta indexes
  • Over 41% of asset owners evaluating or using strategies based on smart beta indexes anticipate applying Environmental, Social & Governance (ESG) considerations
  • Multi-factor index-based strategies have become the top smart beta equity strategy used

FTSE Russell, a leading global index and data provider, today confirmed 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% (an increase of 10%) from 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-$$10 billion in AUM. This contrasts with last year, when the largest rise in smart beta adoption came from asset owners with under $1B.

Results from this year’s survey also detail strong interest in applying 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.

Rolf Agather, Managing Director of North America Research, FTSE Russell, said: 

“Our fourth annual smart beta survey demonstrates asset owners have readily adopted smart beta indexes and continue to evolve their strategies based on these indexes. Asset owners and consultants continue to increase their understanding of smart beta and are now harnessing the full spectrum of smart beta tools available.  The survey results suggest that growth in smart beta is likely to continue at a robust pace. Responses indicate that adoption expectations of asset owners currently evaluating initial or additional smart beta index allocations remains strong and satisfaction with smart beta among current users remains high. We believe the survey findings can provide a degree of insight for all market participants with an interest in smart beta.”

FTSE Russell’s survey was conducted in January and February 2017 among 194 global asset owners. Participants come from North America (43%), Europe (32%), Asia Pacific (19%) and other regions (5%). The global research team at FTSE Russell, a pioneer in smart beta through predecessors FTSE and Russell Indexes, engaged a mix of organizations including corporations, government entities, union or industry-wide pension schemes and non-profits to gather these findings. Total assets under management for survey participants are estimated at over $2 trillion globally.

Other notable survey findings:

  • Smart beta index adoption continues to grow 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.
  • Use of smart beta 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.
  • Multi-factor smart beta indexes increase in popularity 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.
  • Fixed income smart beta In the 2017 survey, we introduced an analysis of smart beta evaluation and usage trends for fixed income, which is intended to grow and evolve with this nascent market. The establishment of a well-defined set of factors has not taken place yet for the debt markets and, not surprisingly, far fewer asset owners indicated they have evaluated smart beta for fixed income.

Survey background and methodology:

The sample crosses a wide mix of organization types – government organizations (23%), non-profit organizations or universities (17%), corporations or private businesses (15%), unions or industry-wide pension schemes (11%) – and the rest is a mix of insurance companies, sovereign wealth funds, health-care organizations and family offices. 56% of survey respondents manage defined benefit plan assets, 36% manage defined contribution plan assets and 18% manage endowment or foundation assets. Respondents also include asset owners with insurance general accounts, sovereign wealth funds and other types of institutional entities. Respondents are, by AUM tiers, asset owners with under $1B in AUM (19%); those with between $1B and $10B in AUM (34%); and those with $10B or more in AUM (47%). Total AUM of the survey participants is estimated to be over $2 trillion.