Smart Beta Gaining Traction Among Institutional Investors

Institutional investors, especially those managing more than $10 billion, are increasingly adopting smart beta strategies, according to a report released Monday by Russell Investments. Almost a third of respondents said they currently have smart-beta allocations. Of those, 53% say they will increase that allocation. Just 5% expect to decrease it.

Most investors have a relatively small smart beta allocation. Forty percent have less than 5% of their equity portfolio invested in a smart beta strategy, and 22% have between 6% and 10%.

Russell surveyed nearly 200 equity investment decision makers in the first quarter for the report, with respondents from pension plans, endowments and foundations of different asset sizes, regions and in different stages of their evaluation and adoption of smart beta.

Among the largest investors, 88% have considered a smart-beta strategy or plan to do so in the next 18 months. Half of investors with under $1 billion and 77% of those with between $1 billion and $10 billion agreed.

Furthermore, of those who are considering whether to add smart beta, more than three-quarters expect that they will.

As for their motivations, risk reduction and return enhancement were the top two reasons given by investors who were evaluating smart-beta strategies.

“Our survey confirms that we’ve clearly reached a new stage in the evolution of investment management,” Rolf Agather, managing director of global index research and innovation for Russell Investments, said in a statement. “Smart beta indexes and investment strategies are gaining traction among asset owners because these highly sophisticated investors are finding value in their investment outcomes and characteristics.”