Smart beta popularity growing among European investors, finds PowerShares

Oct 24th, 2016 | By | Category: ETF and Index News

According to research from exchange-traded fund provider Invesco PowerShares, smart beta as an investment strategy is rapidly growing in popularity among European investors – 71% of survey respondents believe smart beta strategies will become a widely accepted investment over the next few years, compared to 60% of investors who held the same conviction in 2015.

PowerShares study points to greater use of smart beta by European investors

Bryon Lake, Head of Invesco PowerShares – EMEA.

To conduct the survey, PowerShares contacted 360 European investment professionals, primarily composed of portfolio managers, CIOs, gatekeepers, and fund analysts; who are both users and non-users of smart beta, to participate in an online questionnaire.

Confidence in smart beta becoming a widely accepted investment was strongest in France (79% of respondents) and the UK (78%). Building upon this, 73% of smart beta users in Europe would recommend smart beta to colleagues and investment professionals.

Bryon Lake, Head of Invesco PowerShares EMEA, commented: “Smart beta is increasingly seen as a tool of choice among users in meeting investment objectives and is playing an increasing role in investment portfolios across Europe. Although many users have implemented smart beta in varying ways, highlighting its flexibility, there is a general consensus of the efficient nature in which smart beta can potentially deliver on investment objectives.”

The research also highlighted that investors are willing to act on their confidence in the strategy: 71% of current smart beta users across Europe indicated they would increase their allocation to smart beta over time, with the UK (78% of current smart beta users) leading the pack. Furthermore, none of the current smart beta users in Italy, France or Switzerland had plans to decrease their smart beta allocations.

The research also found that current users of smart beta have increased their forecast for uptake of these strategies going forward. Last year UK users expected allocations to increase to 20% over three years, but this figure has increased to 25% in 2016. Swiss users have also increased their expected allocation for the next three years (17% in 2016 vs. 12% in 2015), while French users expect to increase their current allocation of 11% to 19% within three years.

Bryon Lake, continued: “This valuable research shows that smart beta is increasingly being seen as a way to provide greater control in meeting investment objectives, and it is playing an increasing role in investment portfolios throughout Europe. Smart beta’s underlying theoretical framework originated in academia, but it has now been brought to the investing public.  Offering a wide array of strategies, these span factors, regional and global equity exposures and, more recently, across asset classes, with growing opportunities in the fixed income space.”

‘Enhancing diversification’ was the most commonly cited reason for investing in smart beta strategies among most European countries, although French respondents broke the trend by favouring the ‘ability to control risk factors’. ‘Enhanced transparency’ and ‘Systematic rules-based processes’ – two factors closely linked to improving investor control – also featured highly on the list. When asked directly, 63% of users agreed smart beta offers greater control than any other investment.

A resounding 96% of users surveyed believe that smart beta investments have met their expectations, a 5% increase from 2015. PowerShares believes this may be attributable to the systematic nature of the strategies, enhancing process transparency and thereby delivering on stated investment objectives. Furthermore, nearly two thirds of users agree that smart beta strategies can complement existing active and passive strategies.

Bryon Lake, concluded: “The most resonating message from this research is that user confidence and use of smart beta is expected to grow over time. Although investors implement smart beta in various ways – highlighting the flexibility of the products – the general consensus is that the strategies have the potential to deliver on investment objectives. We are now at a point where investing in smart beta has become easier, with previous barriers diminishing.”

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