Factor-Based ETFs: No Big Worry About Potential Bubble

Despite concern in recent months that select exchange traded fund (ETF) strategies were becoming expensive, the overwhelming majority of participants in a recent PowerShares Factor Survey indicated they were not worried about a potential bubble in factor-based ETFs.

The survey of 50 financial professionals at the Morningstar ETF Conference earlier this month in Chicago found 80% of respondents felt this way.

Survey respondents demonstrated further confidence in factor-based ETFs by characterizing the growing trend as “the next wave of smart beta investing.”

“As we celebrate the 10-year anniversary of Invesco acquiring PowerShares,I think it’s very encouraging to see advisors and investors looking beyond the noise to see the power behind factor-based ETFs,” said Dan Draper, Global Head of PowerShares. “While some have criticized individual factors for underperforming at times, the power of these strategies is best leveraged when two or more factors are combined to help smooth out investment returns over the long run.”

In 2006, one of the world’s largest asset managers, Invesco, acquired PowerShares to leverage the power of delivering these strategies in an ETF wrapper that blends the positive characteristics of active and passive management while improving the toolbox of options available to investors.

Survey participants echoed these sentiments, with nearly half saying that they are using factor-based ETF strategies for greater diversification (45%) and to dampen portfolio volatility (43%).

Of those that responded, less than 15% indicated that they are using factor-based investing strategies to implement market forecasts in client portfolios.