Industry Updates

FTSE Russell: Smart beta allocation reaches record high

George Geddes

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The percentage of asset owners reporting an existing smart beta allocation has increased 10 percentage points since last year to 58%, according to FTSE Russell’s 2019 smart beta global



Questioning 178 global asset owners on their exposure to smart beta products, FTSE Russell found more investors have adopted smart beta in to their portfolios from 48% in 2018 to 58% this year, a record high.

Additionally, a fifth of those surveyed said they are currently re-evaluating, evaluating or plan to evaluate their allocation suggesting the number of investors using smart beta is likely to grow.

That being said, the percentage of investors which have no existing allocation and do not plan to evaluate in the next 18-months has also grown from 9% in 2018 to 17% this.

A previous ETF Insight piece by ETF Stream exposed the potential dangers of backtesting on newer and fancier smart beta products.

The top reason for asset owners to evaluate their smart beta strategies again are because of increased understanding through new information and education as well as longer track records. In previous years, reasons included new types of strategies such as multi-factor as well as increased off-shelf product availability.

Return enhancement was the leading objective for investors to initiate evaluating smart beta strategies. Up from 52% in 2017, 68% of those surveyed evaluating their allocation say it is because of the likelihood of greater returns. Alternatively, fewer investors said reduced risk was the reason for evaluating, down from 56% last year to 52%.

A recent study by Citi found fixed income smart beta products is an area for potential growth and development in the future.

Looking more specifically at which smart beta strategies are being used, its multi-factor combinations which leads the pack with 71%. The next strategy is low volatility with 35% and then value with 28%.

FTSE Russell says it expects to see continued development in multi-factor adoption following the growth of the strategy has seen in the last two years.

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