Smart beta gaining favour with financial advisors, finds FTSE Russell

Nov 12th, 2015 | By | Category: ETF and Index News

FTSE Russell, a global index provider, has released the results of a survey of US financial advisors. The survey identifies increasing adoption of smart beta strategies within client portfolios.

Smart beta gaining favour with financial advisors, says FTSE Russell

Dan Draper, Managing Director, Global Head, Invesco PowerShares.

The survey targeted 307 financial advisors who were screened to ensure each held a minimum of $20m in assets under management with at least 4% invested through exchange-traded funds. Of those sampled, a combined 89% of respondents expressed interest in using smart beta product. This included 28% of respondents who stated they were ‘very interested’ in such offerings.

The survey also uncovered a growing awareness among financial advisors as to the role and benefits of smart beta investing; a combined 72% of respondents indicated they were either ‘somewhat familiar’ or ‘very familiar’ with these alternatively-weighted products. Ron Bundy, CEO Benchmarks North America, FTSE Russell, commented: “We are seeing growing demand in the investment community for more sophisticated indices that can measure market exposures efficiently and, in many cases, combine multiple factors.”

Delving further into the perceived benefits of such strategies, the most frequently cited motivation for adopting smart beta within client portfolios was to protect assets during market downturns (62% of respondents), followed by lower portfolio volatility (53%), increased alpha (49%), higher yield (40%), and portfolio diversification (38%).

Of the existing smart beta approaches, financial advisors showed the greatest interest in products weighted by dividend yield; 36% of respondents have already adopted this strategy while a further 35% stated they were very likely to do so in the near future. Strategies that screen firms by quality came a close second with 27% indicating their current use of these products while a substantial 40% show an interest in future adoption. Other strategies that sparked interest included fundamentally-weighted (54% of combined respondents), followed by low volatility (52%), equal weighted (48%), and momentum (41%).

Due to the growing demand from investors to seek strategies other than the traditional market cap-weighted investment style, FTSE Russell launched the FTSE Low Beta Equal Weight Index Series. The methodology behind the series aims to reflect the performance of firms exhibiting low market volatility while also combining equal weighting of the chosen constituents. By diversifying with two or more smart beta strategies, it is believed that clients’ portfolios may be better protected from specific future market conditions where one strategy has historically performed poorly.

The series has become the basis of two new ETFs launched in the US by Invesco’s PowerShares: the PowerShares Russell 1000 Low Beta Equal Weight Portfolio (NYSE: USLD) and the PowerShares FTSE International Low Beta Equal Weight Portfolio (Nasdaq: IDLB).

Dan Draper, Managing Director, Global Head, Invesco PowerShares, said: “We’re excited to be rolling out two new low beta strategies to help our clients potentially reduce portfolio risk. This launch builds on successful recent introductions of the PowerShares Russell 1000 Equal Weight Portfolio (EQAL) in January and a new suite of PowerShares ETFs based on the Russell Pure Style Index Series in May. It’s great to expand on our successful alliance and join forces again with a leading global index provider FTSE Russell.”

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