Nearly six in 10 institutional asset owners are now using smart beta strategies in their portfolios, according to a new survey of 178 instos by FTSE Russell.
Adoption has doubled what it was five years ago when roughly three in 10 used smart beta. Last year saw a rise of 10% and 78% have either implemented them, are evaluating or plan to evaluate these strategies.
"The survey shows that asset owners are becoming increasingly comfortable with smart-beta strategies and there is less uncertainty about their longer-term track records. Respondents are also viewing smart-beta allocation strategies as more similar to traditional active rather than passive strategies," FTSE Russell said.
Why the increase?
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Smart beta strategies sit between active and passive strategies. They aim to beat index returns by investing in a subset of the index chosen according to factors such as value, quality, and momentum or a combination of multiple factors, but at a cost lower than traditional active strategies.
The multi-factor approach proved to be the most popular in the year, with its users climbing up from 49% of the surveyed investors last year to 71% this year.
Survey respondents said their top reason for turning to smart beta was enhancing return (68%), reducing risk (52%), diversification (48%), cost savings (31%), to get exposure to a specific factor (22%) and to generate income (9%).
Geographically, European asset owners were the most enthusiastic about smart beta (65% adoption) but North American investors are not far behind (60% adoption). Asia Pacific had the lowest adoption (53%) but it picked up from 35% last year.
FTSE has also expanded its Australian ESG coverage to include small caps. It now provides data on ESG issues exposure and management for 250 ASX-listed companies.