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Smart Beta Strategies More Popular Than Ever and Growing Rapidly: Survey

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The growth in smart beta strategies is accelerating at a rapid pace, according to a new report from FTSE Russell.

Allocations to smart beta strategies reached a new peak of 46% of global asset owners, up from 36% last year – an increase of 10 percentage points, or almost 28%, according to the fourth annual FTSE Russell Global Institutional Smart Beta Survey.  

Another 25% of asset owners are currently evaluating using smart beta strategies, indicating a “healthy pipeline” for future allocations, according to the survey.

“The survey results suggest that growth in smart beta is likely to continue at a robust pace,” said Rolf Agather, managing director of North America Research at FTSE Russell.

(Related on ThinkAdvisor: Smart Beta: Which Strategy Works Best Over Time?)

Smart beta strategies are alternatives to traditional market capitalization-based index strategies that attempt to deliver better risk-adjusted returns at a lower cost.

Asset owners with $1 billion to $10 billion in assets under management led the increase in use of smart beta strategies in the past year and adoption was strongest in Europe, where 60% of asset owners reported a smart beta allocation, followed by Asia Pacific (48%), then North America (37%).

European asset owners and asset owners with over $10 billion in AUM were also the most interested in applying ESG considerations to smart beta strategies.

Sixty percent of European asset owners showed interest in ESG criteria compared with just 20% in North America, and the primary motivations for both were based more on investment goals — including risk reduction, returns and diversification — rather than social goals or regulatory requirements, according to the survey.

Among individual smart beta strategies, multi-factor were the most popular, with 64% of survey respondents reporting using such a strategy, followed by low volatility (47%) and value (34%). Those three strategies are also the most popular among asset owners currently evaluating smart beta strategies.

Maximum diversification, minimum variance and equal-weight strategies were the least popular smart beta strategies, with equal weight at the bottom of the pack, used by just 6% of smart beta asset owners. But almost three times that percentage of asset owners are currently evaluating equal-weight strategies, according to the survey.

The survey was based on responses from 194 global asset owners from North America, Europe and Asia Pacific managing an aggregate of more than $2 trillion in assets. They included asset owners managing defined benefit and defined contribution plans, endowments and foundations, insurance accounts and sovereign wealth funds.

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