In the exchange traded fund space, so-called smart-beta indexing methodologies are turning heads. Pension funds, though, are still sticking to what they know.
According to a recent Russell Investments survey of asset managers, most managed portfolios remain in traditional asset strategies, even as smart-beta fund adoption expands, reports Carl O’Donnell for InvestmentNews.
“More and more people are adopting smart beta products, but I wouldn’t expect a revolution,” Rolf Agather, managing director of Russell Indexes, said in the article. “This will occur at a slow and steady pace during the early days of adoption.”
The Russell survey also reveals that smart-beta fund investors are using the strategies as a tactical, short-term trade instead of a core, long-term position.
“I think we are seeing that most asset managers are still trying to figure out where these products fit,” Agather added. “They are taking smaller, tactical allocations rather than big, strategic allocations.”
Nevertheless, institutional investors have expressed an interest in smart-beta products or are at the very least evaluating the strategies. [Institutional Adoption of Smart Beta ETFs on the Rise, Says Russell]
The rising group of smart-beta, enhanced, factor-based, intelligent or fundamental funds provides investors with a type of actively managed style in a passive index-based product. The ETFs track companies screened for factors like dividends or volatility to help provide a better risk-adjusted return.
The smart-beta ETFs also provide an alternative investment tool for investors in a market dominated by market capitalization-weighted funds, which provides increased exposure to larger company stocks. [Understand Smart-Beta ETFs Before Jumping In]
As more investors begin to understand the smart-beta strategies, adoption of these types of index products could pick up pace.
“I don’t think that a large group of people are skeptical about smart beta funds as a whole,” Agather said. “The important thing is to understand each individual strategy and whether it fits into your portfolio.”
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Max Chen contributed to this article.