Accelerating adoption of smart beta

  • FTSE Russell have released their 2016 smart beta survey, their third annual survey. They define “smart beta” as any index-based investment strategy that is not market capitalisation-weighted.
  • The survey combines the views from 253 asset owners (across all types) with assets of over $2 trn.
  • At the risk of over analysing a time series of only three years, the biggest takeaway is there appears to be an accelerating pace of embracing smart beta strategies in the asset owner community on a global basis. The report claims that 2016 is a turning point – the percentage of asset owners currently evaluating smart beta has doubled since 2014. [We explored this as one of the future state scenarios in the “State of the industry” project in early 2015. At that point, Institute members predicted a continuation of recent growth rates on a 5-year outlook.]
  • The strongest growth in smart beta adoption is seen among ‘smaller’ asset owners (under $1bn). Geographically, 52% of the European asset owners claim to have adopted smart beta strategies, followed by 38% in Asia Pacific and 28% in North America.
  • Return enhancement and risk reduction continue to be the primary objectives of adopting smart beta strategies.
  • The survey also (indirectly) highlights the issues of governance / internalisation. Asset owners with less than $10bn in assets rely heavily on consultants for information on smart beta. Above assets of $10bn, however, large asset owners tend to use journal publications and external investment managers as their primary sources.
  • The full report can be requested here.