In 2018, 91% of asset owners globally have a smart beta investment allocation, have evaluated or are planning to evaluate this topic in the next 18 months. This is a notable increase from 2014 when the survey was first fielded, where 75% of asset owners had a smart beta allocation, evaluated or were planning to evaluate smart beta. Yet despite a very strong growth in adoption, educational shortfalls remain. Among the top three barriers to entry was how to determine the best strategy (or combination of strategies) for smart beta implementation with more than 50% of those surveyed citing this as an issue in the US and the UK.

Combination Proliferation

Among global asset owners surveyed in 2018, multi-factor combination smart beta strategies were used by 49%, a notable rise from 20% when first measured in 2015. Furthermore, 70% of asset owners are currently evaluating multi-factor combination smart beta strategies, far surpassing all other strategies. Notably, asset owners in the US and the UK are showing more interest in multi-factor smart beta index-based strategies yet, again lack of education was cited as a major barrier to implementation. However, amid the rapidly growing interest in multi-factor combination smart beta strategies, asset owner interest in fundamentally weighted strategies has declined. In 2018, 19% of global asset owners surveyed with an existing smart beta allocation are using these strategies, down from 41% usage when first measured in 2014.

Putting the “P” in ESG

Though a relatively new entry into FTSE Russell’s annual survey, smart beta indexes measuring environmental, social & governance (ESG) factors are clearly on the rise. Nearly 40% of asset owners surveyed anticipate applying ESG considerations to a smart beta strategy in the next 18 months. And, notably, asset owners are looking to ESG index-based strategies for performance reasons and not just asset allocation or societal good. In 2018, 44% of asset owners surveyed were considering ESG for performance reasons, a 13% increase from 2017 when ESG smart beta index awareness and usage was first measured.

Survey background and methodology

FTSE Russell’s fifth annual global institutional smart beta survey was conducted in January and February 2018 among 185 global asset owners. The sample covers a broad mix of organization types – government organizations (36%); corporations or private businesses (20%); non-profit organizations or universities (15%) and unions or industry-wide pension schemes (10%) – with the rest a mix of insurance companies, sovereign wealth funds, healthcare organizations and family offices.

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67% of survey respondents manage defined benefit plan assets, 36% manage defined contribution plan assets and 15% manage endowment or foundation assets. Respondents come from North America (54%), Europe (31%), Asia Pacific (11%) and other regions (4%). Respondents are, by AUM tiers, asset owners with under $1B in AUM (20%); those with between $1B and $10B in AUM (39%); and those with $10B or more in AUM (41%). Total AUM of the survey participants is estimated to be over $3.5 trillion globally.

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