Smart beta index adoption rates in Europe have been the highest globally over the past three years, according to the FTSE Russell third annual global institutional market survey.
According to the survey (Smart Beta: 2016 Global Survey Findings from Asset Owners), the smart beta trend has matured to the point that large numbers of asset owners now consider smart beta indexes to be an important part of the investing toolkit.
For the 2016 survey, 52% of the European asset owners surveyed have adopted smart beta indexes, compared to 28% in North America and 38% in Asia. The segment with the largest growth in adoption has been European asset owners with under US$1bn in assets; in this segment, adoption has grown from 15% in 2014 to 47% in 2016.
As reported, smart beta equity exchange-traded funds and products (ETFs/ETPs) listed globally gathered over US$60bn in 2015, according to ETFGI. This included 764 smart beta equity ETFs/ETPs, with 1,336 listings and assets of US$399bn, from 106 providers listed on 31 exchanges in 27 countries.
The survey demonstrates accelerating interest in and implementation of smart beta indexes among global institutional asset owners, according to Peter Gunthorp (pictured), managing director of European research, FTSE Russell. "While many asset owners and consultants, particularly those in Europe, have increased their understanding of smart beta, continuing innovations in other asset classes and the multi-factor arena underscore the need for continuing information and education."
In addition to growth in adoption, smart beta indexes are an increasingly important component of equity portfolios. Over half of European asset owners with smart beta allocations have over 20% of their portfolio invested in smart beta investment vehicles. European asset owners, particularly those who have had smart beta allocations for more than two years, are a significant driver of the trend toward larger smart beta allocations; nearly seven in 10 surveyed have over 20% of their equity portfolio invested in smart beta investment vehicles.
The survey also found that 2016 is a turning point in smart beta evaluation with the percentage of asset owners globally currently evaluating smart beta doubling since 2014; and that the growth in smart beta indexes will be driven by those asset owners who are currently evaluating smart beta indexes, as well as by asset owners with existing allocations making larger investments in smart beta investment vehicles over time.
Return enhancement and risk reduction continue to be the primary objectives for use of smart beta by asset owners as cost savings are more important in 2016 than in years past. In addition, the survey found that the roles assumed by investment managers, consultants and index providers in the evaluation of smart beta vary depending on AUM tiers of asset owners. External investment managers are most extensively engaged with asset owners under US$1bn in AUM; consultants with asset owners between US$1bn to US$10bn in AUM; and index providers with asset owners with US$10bn or more in AUM.
In relation to the preferred use of vehicles for strategic and tactical implementation, the survey found that separate accounts are the most preferred vehicle for strategic implementation of smart beta although for tactical implementation, asset owners are using a wide range of vehicles, including internal management of assets, separate accounts, ETFs and CITs (collective investment trusts).
The FTSE Russell annual survey was conducted in January and February 2016. The 253 asset owners included this year (up from 214 last year and 181 in 2014) are drawn from North America (49%), Europe (33%) and Asia (13%).
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