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.
[related_stories]“The survey demonstrates accelerating interest in and implementation of smart beta indexes among global institutional asset owners,” Rolf Agather, managing director of North America research at FTSE Russell, said in a note. “While many asset owners and consultants have increased their understanding of smart beta, continuing innovations in other asset classes and the multi-factor arena underscore the need for more information and education. We hope the results of the survey provide a degree of insight for all market participants with an interest in smart beta.”
Additionally, the survey suggests that further growth in the smart beta space could be driven by asset owners who are still evaluating smart beta indices, along with those with existing allocations making increased smart beta allocations over time.
The increased adoption from institutional investors is good news for all ETF investors.
Related: Liquidity For Smart Beta ETFs Improves
“As institutional investor comfort with smart beta strategies climbs, volume for these ETFs should improve, keeping bid/ask spreads low, regardless of asset base, for all investors,” Todd Rosenbluth, S&P Global Market Intelligence Director of ETF Research, said in a research note.
For more information on smart beta ETFs, visit our smart beta category.