Russell’s findings jibe with those of financial services firms. A quarter institutional decision makers indicate they are already using smart beta ETFs, implying significant room for growth. Speaking of growth, “over the next three years, institutions plan on increasing their use of smart beta ETFs more than any other category (including market-cap weighted ETFs),” according to a study conducted last year by PowerShares, the fourth-largest U.S. issuer, and Cogent. [Bright Future for Smart Beta ETFs]
The Russell survey reveals the primary motivations for institutional investors increased usage of smart beta funds are risk reduction and boosting returns while “cost savings, cited just 15% of the time, ranked at the bottom of the list of motivating factors,” according to Russell.
Regarding the terminology used to reference smart of intelligent index products, for which there has been ample debate, “in North America, the most popular name was “alternatively weighted indexes” (33% of survey respondents preferred this name) while, in Europe, “smart beta” is the preferred name (35% of respondents),” said Russell. [WisdomTree on Smart Beta: Question the Name, not the Trend]
ETF Trends editorial team contributed to this post.