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- Over 70% of asset owners with smart beta allocation now combining strategies
- ETFs most preferred vehicle for tactical smart beta strategies
- European asset owners continue to lead North America on adoption of smart beta
FTSE Russell today confirmed that smart beta index adoption among institutional investors is growing and becoming more broad-based, according to its new global institutional market survey. The FTSE Russell Smart Beta: 2015 Global Survey Findings from Asset Owners survey confirms a significantly increased interest in, and adoption of, multiple smart beta indexes among institutional asset owners around the world. The results highlight the importance of ongoing education and information surrounding the myriad of smart beta index methodologies available in the market today and how these approaches can work in combination.
The 2015 results reveal a significant increase in smart beta allocation in a relatively short period of time. In 2014, 38% of the survey respondents with an allocation to smart beta index strategies had allocated 10% or more of their organization’s equity portfolio to smart beta. In 2015, more than half (55%) of survey respondents are allocating more than 10% to smart beta strategies.
In addition, the number of asset owners using multiple smart beta strategies has grown. In 2014, 59% of the asset owners responding to the survey were using more than one strategy; in 2015, 71% are using more than one strategy, and 22% of those respondents are using four or more strategies. These differences highlight a growing allocation to smart beta strategies and the survey also reveals movement toward combining multiple factor and strategy indexes.
Rolf Agather, MD of North America research for FTSE Russell said:
“Smart beta indexes 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. Institutional asset owners are increasingly using more smart beta indexes 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, conducted in January and February of this year, included 214 asset owners predominantly from North America (61%) and Europe (26%). The research team at FTSE Russell, a pioneer in smart beta through predecessor businesses FTSE Group and Russell Indexes, engaged a mix of organizations including corporations, government entities, union or industry-wide pension schemes and non-profits to reach these findings. Total AUM of the survey participants is estimated to be over $2 trillion.
Other Key Findings:
Adoption continues to grow globally
- European asset owners with $10B or more in AUM lead the adoption of smart beta indexes
- In Europe, 79% of asset owners have evaluated smart beta indexes, and only 2% did not anticipate evaluating them in the next 18 months – while 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
- Among those asset owners most likely to evaluate smart beta for the first time over the next 18 months are those in North America with between $1B and $10B in AUM
Implementation of smart beta strategies growing more sophisticated
- On average, asset owners globally are evaluating four different smart beta index strategies, and more than 70% are using a combination
- Low Volatility and Value are the most-used indexes as part of a smart beta combination
- The majority (71%) of asset owners anticipate holding smart beta indexes for five years or longer to achieve their investment objectives and a third of asset owners are using or evaluating smart beta for tactical applications
- For strategic allocations of smart beta, ETFs are in demand among respondents with less than $1B in AUM, and managing assets internally is of interest to those with more than $10B in AUM
- For implementation of smart beta, ETFs are preferred by nearly half (43%) of respondents globally
Asset owners rely on a host of providers for education and advice
- In North America, asset owners are looking most to external asset managers, journal publications and consultants for smart beta education and advice. In Europe, top smart beta sources for asset owners include industry events and symposiums, external asset managers and journal publications
- Across global markets, external asset managers are initiating the evaluation of smart beta strategies; the evaluation of smart beta is also being initiated by the review of academic research and information from index providers
- The internal investment manager and CIO are more involved in the evaluation of smart beta strategies and, in most cases, the CIO is the primary decision maker
- The responsibility for monitoring and adjusting smart beta allocations varies, depending on a respondent’s AUM, resting either with the consultant, the internal investment manager or the CIO
About The Survey
Almost 90% of the respondents either have direct responsibility for selecting equity investments or play roles in teams that perform this function. The sample crosses a wide mix of organization types – corporation or private business (23%), government organization (22%), non-profit or university (14%), union or industry-wide pension scheme (13%) – and the rest is a mix of health-care organizations, insurance companies, family offices and sovereign wealth funds. Sixty-five percent of survey respondents manage defined benefit plan assets, 38% manage defined contribution plan assets and 17% manage endowment or foundation assets. Respondents also include asset owners with insurance general accounts, sovereign wealth funds and other types of institutional entities. By AUM, the respondents were almost evenly distributed across the tiers evaluated; 29% under $1B, 33% between $1B and $10B, and 38% $10B or more.
A full report can be found here: 2015 FTSE Russell Smart Beta Survey Report
