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In a survey of investment professionals conducted as part of the Amundi ETF & Indexing research chair at EDHEC-Risk Institute on “ETF and Passive Investment Strategies,” EDHEC-Risk Institute has solicited the specific views of European ETF investors on “smart beta” exchange-traded funds (ETFs). This questionnaire has given rise to a study entitled “Investor Interest in and Requirements for Smart Beta ETFs.”
There are three key findings:
- Those who have invested in smart beta ETFs are pleased overall: about three-quarters (74%) of smart beta ETF users declare that they are satisfied with them
In addition, when asked about their list of top priorities for future product development in the ETF space, smart beta ETFs dominate the list of top items mentioned by investors. In fact, among investors’ six biggest priorities, four concern indices relating to smart beta approaches, namely smart beta equity (37%), equity factor (31%), equity style (29%), and smart beta bond (25%).
- A considerable share of investors still have concerns about these types of products
In attempting to capture factor premia through investment in smart beta ETFs, the predominant conditions that investors put forward are: ease of implementation, low turnover and transaction costs (3.66 on a scale from 0 to 5); a rational risk premium (3.61); and documentation of the factor premium in empirical literature (3.45).
- Lack of transparency is a major concern
A greater share of respondents (88%) than for all other statements about smart beta indices agrees that smart beta indices require full transparency on methodology and risk analytics. Transparency is not only the best protection against the risks arising from conflicts of interests, but it is also instrumental to improving the informational efficiency of the indexing industry. This result comforts the position of EDHEC-Risk Institute, which is continually advocating for improvements in index transparency.
A copy of the EDHEC-Risk Institute study can be found here:
EDHEC-Risk Publication Investor Interest in and Requirements for Smart Beta ETFs
