Invesco PowerShares Managing Director Dan Draper and Vice President of ETF Product Management John Feyerer joined ETF Trends publisher Tom Lydon to discuss increased institutional adoption of smart beta exchange traded funds.
PowerShares, the fourth-largest U.S. issuer of ETFs, recently revealed the results of its second annual study titled The Evolution of Smart Beta ETFs, conducted in conjunction with Market Strategies International (MSI). [Smart Beta ETFs Keep Gaining Traction]
“What we’ve done at Invesco PowerShares is really position and thought about ETFs as a disruptive technology,” said Draper. “Now we take it alongside MSI to the marketplace and test that theory. What we’re finding is not only on ETF adoption, but specifically within smart beta, it continues to grow in awareness and adoption.”
The PowerShares/MSI study, which was published last month, found that smart beta ETFs accounted for 17% of US net ETF inflows in 2014, despite representing less than 11% of total assets. Today there are more than 350 smart beta ETFs available in the U.S. comprising over $230 billion in AUM, up from just 212 products and $64.8 billion in 2010.
Illinois-based PowerShares has one of the most extensive lineups of smart beta ETFs, reaching across broad market, dividend, fixed income, industry and sector funds, among others. Over the past year, seven of the top 10 PowerShares ETFs in terms of assets gathered are smart beta funds, including the PowerShares FTSE RAFI US 1000 Portfolio (NYSEArca: PRF) and the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV). [Business is Booming for Smart Beta ETFs]
Sixty-four percent of institutional usage of smart beta ETFs is currently concentrated to dividend funds, a number that is expected to rise to 67% over the next three years, according to PowerShares. Over the same period, institutional usage of fundamentally weighted ETFs is forecast to rise to 68% from 61% while professional adoption of low volatility is expected to surge to 71% from 57% today.
The PowerShares S&P 500 High Dividend Portfolio (NYSEArca: SPHD) has been on the market just two and a half years and already has $621.5 million in assets under management. SPHD “is composed of 50 securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility,” according to PowerShares. The ETF has a trailing 12-month yield of 3.33%.
“One stat that stood out to me was that for those institutional decision makers that had implemented smart beta in the first study, 7% of the allocation went into smart beta ETFs,” said Feyerer. “A mere one year later, that number is up to about 13%. Doubling in one year shows the growth in adoption within existing users.”