Smart beta now mainstream for instos

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?

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.

Read more: Smart betaInstitutionalFTSE RussellAustralian ESG
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