Institutional Smart-Beta ETF Adoption is Quickly Rising

Exchange traded funds that track smart beta strategies or alternative indexing methodologies are quickly gaining traction among institutional investors.

According to a recent FTSE Russell smart beta survey, global institutional asset owners currently evaluating smart beta has doubled to 36% in 2016 from 15% at the first survey in 2014, and 62% of asset owners with an existing smart beta position are now considering additional allocations.

Related: Smart-Beta ETFs Take Center Stage

Close to 70% of asset owners also take a long view on smart beta, planning to utilize smart-beta options five years or longer to achieve their long-term investment objectives. The rising adoption reflects asset owners’ preference for return enhancement and risk reduction.

The smart beta survey of global asset owners also revealed a developing trend in asset owners’ views and usage of smart beta strategies. The percentage of asset owners that tracking five or more smart beta indices have increased significantly to 21% in 2016 from 2% in 2014.

Low-volatility and value factor indices still remain popular investment strategies among asset owners. However, adoption of multi-factor combination indices has almost doubled in the past year and is now ranks third among top smart-beta funds.