Institutions to Ratchet up Use of Smart Beta ETFs

It is not a stretch to say that 2013 has been the year of “intelligent indexing” or “smart beta” strategies  gaining prominence in the exchange traded funds industry.

The growth of smart beta ETFs may just be getting started as institutional investors plan to boost their usage of these ETFs. Increased use of intelligently indexed ETFs at the institutional level jibes with plans by pension funds, endowments and other institutions to increase overall use of ETFs. [Institutional Investors to Boost Use of ETFs]

A new study by Cogent Research indicates “that more than half (53%) of institutional decision makers will increase their use of smart beta ETFs over the next three years – higher than any other ETF category, including market-cap weighted ETFs (48%),” according to a statement from PowerShares, the fourth-largest U.S. ETF sponsor.

Data for the study were collected from 193 participants between September 5 and October 2, 2013.  A 15-minute online survey was administered by Cogent Research, a division of Market Strategies International, to institutional decision makers, including pensions, endowments/foundations, non-profit institutions, mutual funds, as well RIAs who manage institutional assets. All institutions had at least $20 million in assets and allocated at least 1% of their assets to ETFs. Institutional RIAs had at least $25 million in assets under management – a portion of which was managed on behalf of institutional investors, according to the statement.

Bigger institutions, those managing more than $500 million, are even more inclined to agree that smart beta ETFs provide better risk-adjusted returns relative to market cap weighted ETFs, PowerShares notes.