Amundi/EDHEC study finds high satisfaction among smart beta ETF users

Sep 30th, 2016 | By | Category: ETF and Index News

Smart beta exchange-traded funds are meeting investors’ expectations, with a satisfaction rate of 86%, according to a survey of 180 European investment professionals conducted by EDHEC-Risk Institute and commissioned by Amundi ETF.

EDHEC-Risk institute finds high satisfaction among smart beta ETF users

Fannie Wurtz, Managing Director at Amundi ETF, Indexing & Smart Beta.

While definitions vary, smart beta is essentially a set of investment strategies that emphasise the use of alternative index construction rules to traditional market capitalisation-based indices. By deviating from the conventional market-cap weighted approach, smart beta strategies typically capture investment factors and/or exploit market inefficiencies in a systematic, rules-based and transparent way.

When asked how smart beta has improved their investment processes, 81% of investors believe smart beta indices avoid concentration in very few stocks or sectors, and 79% think diversification across multiple strategies allows a reduction of risk and adds value.

The prime motivation for 87% of respondents when investing in smart beta ETFs is the capturing of factor premia, with value, low volatility and size factors considered as the most likely to be rewarded. Ease of implementation, low turnover and transaction costs are considered to be key factors when adopting a strategy.

Fannie Wurtz, Managing Director of Amundi ETF, Indexing & Smart Beta, commented: “The findings of this survey demonstrate that investors’ appetite for smart beta ETFs will keep on growing in the coming years. As a long-standing provider of smart beta solutions we are particularly attentive to investors’ perception and needs, in order to keep on developing accurate and cost-efficient smart beta tools to efficiently answer their needs”.

One concerning result from the survey was the number of respondents who believed providers of smart beta strategies were not sufficiently delivering the necessary information required by investors to facilitate their decision-making processes. A significant 94% of respondents agree that smart beta indices require full transparency on methodology and risk analytics, up from 88% last year. In order to conduct more effective risk assessments, on investors were most keen to see better transparency concerning data-mining risks and information related to specific fund holdings.

Despite this growing interest for smart beta products, the survey found that investors allocate fewer resources to the assessment of smart beta when compared to the appraisal of active managers or the evaluation of cap-weighted-indices. While a quarter of full-time staff is dedicated to the evaluation of active managers, only 10% of staff is dedicated for the evaluation of smart beta or systematic factor investments.

Speculating on future developments in the smart beta ETF arena, Professor Lionel Martellini, Director of EDHEC-Risk Institute, said: “The growth of ETFs is largely fuelled by an ever-growing interest in investable forms of factor premia, the benefits of which are well-documented by long-term academic evidence. In the next phase of development, as smart beta ETFs will start being perceived as commonly-available commodities, we expect investors’ focus to shift more towards implementation challenges, including transaction costs – an important question that we shall explore and publish about in the future”.

A copy of the EDHEC-Risk Institute study can be found here.

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