Smart beta indexes are coming of age, with growing acceptance and use by global institutional asset owners, according to FTSE Russell’s 2016 global survey.

Seventy-two percent of survey respondents said they had implemented or were actively evaluating smart beta indexes, up from 44% in last year’s survey.

Increased smart beta evaluation is happening among asset owners across all asset tiers, with the strongest growth in adoption among those with less than $1 billion in assets.

Several major firms have jumped into smart beta in recent months. Columbia Threadneedle, part of Ameriprise Financial, said in May it was buying Emerging Global Advisors, which constucts smart beta portfolios. A week later, Hartford Funds announced it would buy the smart beta firm Lattice Strategies. BlackRock’s iShares business recently projected that smart beta ETF assets will reach $1 trillion globally by 2020 and $2.4 trillion by 2025.

The survey results showed a growing share of equity going into smart beta-replicating products.

Thirty-nine percent of respondents with smart beta allocations said they had a 20% or higher share of equity in smart beta, up from 18% in 2014 and 20% in 2015, while the share with 5% or less invested decreased from 40% in 2014 to 22% in 2016.

The new survey was conducted in January and February among 253 corporations and private businesses, government organizations, unions and industrywide pension schemes, and nonprofits, as well as a mix of insurers, family offices, sovereign wealth funds and health care organizations.

Forty-nine percent of respondents were located in North America, 33% in Europe and 13% in Asia/Pacific. There, total assets under management were estimated to be more than $2 trillion.

Smart beta, sometimes called strategic beta, is a set of strategies using alternative forms of index weighting — fundamentals, for example — instead of market capitalization weighting. Major proponents include Research Affiliates, led by Rob Arnott, and Schwab.

Skeptics of smart beta include Vanguard founder John Bogle, who called the strategy “silly” and a “marketing gimmick,” and famed investor Burton Malkiel, who has said “the factors behind smart beta are not dependable.”  Barron’s staff writer Reshma Karpadia summed up critics’ reservations this way: “The trouble is that there are too many different strategies in the mix to warrant a category label that implies cohesion — especially since many strategies are still unproven.”

The FTSE Russell survey found that about 62% of investors with a smart beta allocation were currently evaluating additional smart beta strategies. Seventy-six percent planned to increase their allocation, and 19% to maintain theirs.

Nearly three-quarters of asset owners with allocations said they were satisfied or very satisfied with smart beta’s ability to deliver on intended outcomes, up from 61% in 2015.

Implementation

Return enhancement and risk reduction continue to be investors’ primary objectives for use of smart beta, cited by 58% and 46% of respondents, respectively. In addition, cost savings became more important than in the past, cited by 25% of investors, up from 16% last year. Cost savings was significantly more important for respondents with $10 billion or more in assets than for those with fewer assets.

The survey results showed that the percentage of investors that viewed smart beta as part of their active equity allocation increased to 35% in 2016 from 22% in 2015, with growth coming from the percentage of those that had previously viewed smart beta as part of active and passive allocations.

The main strategies asset owners used in 2016 were low volatility, cited by 46%; value, 41%; and multi-factor combination, 37%.

An increasing share of respondents also used high-quality and momentum strategies, while fewer used fundamental ones.

Twenty-one percent of respondents said they used five or more smart beta strategies has increased significantly, way up from 9% in 2015. Thirty-one percent used just one strategy—most often fundamental.

Since 2014, investors’ chief concerns about smart beta implementation have been determining the best strategy or combination of strategies and managing unintended factor biases.

In the new survey, they also expressed growing concern about unintended sector biases and high turnover.

Thirty-nine percent of all respondents and 54% of those with $10 billion or more in assets said they most preferred separate accounts as the vehicle for strategic implementation of smart beta.

For tactical implementation of smart beta, 27% of asset owners said they used internal management of assets, 22% separate accounts, 20% exchange-traded funds and 18% collective investment trusts.

Check out A Random Talk With Burton Malkiel on ThinkAdvisor.