ETF Trends
ETF Trends

Smart Beta ETF investing continues to gain global assets at a rapid pace, increasing 18.3% in the first eight months of 2017 to reaching a new record of $630 billion.

Independent research and consultancy firm ETFGI reported today that assets were reached at the end of August with US$559.41 billion in the United States, US$46.46 billion in Europe, US$14.99 billion in Canada and US$5.72 billion in Asia Pacific (ex-Japan).

In August 2017, smart beta equity ETFs/ETPs gathered net inflows of US$3.23 billion, marking the 18 consecutive month of net inflows and a level of US$48.86 billion in year to date net inflows which is greater than the US$33.77 billion in net inflows at this point last year.

The latest growth data surrounding the smart beta segment of the ETF industry was welcomed by Rob Bush, ETF Strategist for Deutsche Asset Management.

“Our view is that smart beta approaches enable investors to access a set of stock characteristics that have been shown to partly explain equity returns,” Bush told ETF Trends. “Presumably, the growth in AUM is evidence that these strategies are resonating.”

He added there are many attractive aspects of smart beta portfolios.

“They allow investors to participate in strategies that were once the preserve of institutions, and, in the case of ETFs, to do so easily by trading throughout the day on exchanges, with small minimum investments, and at a relatively low cost,” Bush said.

Bush said Deutsche Asset Management offers a suite of ETFs that take a variety of starting universes and tilt the stocks within those regions towards value, size, momentum, quality, and low volatility – five of the most well-known, and empirically valid factors.

“Put simply, in our view, investors should want relatively cheap, low risk, smaller cap stocks that are producing high quality profits with a positive price trend,” he said.

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Combining market moves and net inflows, smart beta equity ETF/ETP assets have increased by 18.3% from US$532.79 billion to US$630.39 billion, with a 5-year CAGR of 31.5%.

At the end of August 2017, there were 1,279 smart beta equity ETFs/ETPs, with 2,171 listings, assets of US$630 billion from 158 providers on 40 exchanges in 33 countries.

About 88.7% of Smart Beta assets are invested in the 631 ETFs/ETPs that are domiciled and listed in the United States and 76.2% of the assets are invested in the 507 ETFs/ETPs that provide Smart Beta exposure to the US market.

Jillian DelSignore, Executive Director, Head of ETF Distribution J.P. Morgan, said factor based investing has been around for decades, but the ETF vehicle has helped democratize that access to all investors.

“Factor based ETFs can allow investors to gain exposure to risk premia shown to outperform over time — for example, value, size, momentum,” DelSignore said. “Multi factor ETFs provide exposure across a number of those factors helping to provide a more diversified core of a portfolio.”

For example, the JPMorgan Diversified Return International Equity ETF (NYSEArca: JPIN), has grown to over a $1 billion in assets in just under three years.

Del Signore said JPIN is often used as a compliment to market cap weighted ETFs to help provide a smoother ride in an asset class that can tend to be more volatile — a way to help advisors keep their clients invested.

iShares gathered the largest ‘smart beta’ ETF/ETP net inflows in August with US$1.66 billion, followed by DeltaShares with US$793 million and Vanguard with US$707 million net inflows.

Products tracking MSCI ‘smart beta’ indices gathered the largest net ETF/ETP inflows in August with US$2.03 billion, followed by CRSP with US$646 million and FTSE Russell with US$367 million net inflows.

For more on Smart Beta ETFs, visit the Smart Beta Channel home page.