Smart beta usage up but more education needed, finds FTSE Russell

Jan 24th, 2018 | By | Category: Equities

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Smart beta strategies are becoming a growing part of the asset allocation schemes of financial advisors and wealth managers, according to a survey from index provider FTSE Russell.

Rolf Agather, managing director of North America research, FTSE Russell

Rolf Agather, managing director of North America research, FTSE Russell

Conducted in partnership with Greenwald & Associates, the survey interview 256 full-time, fee-based financial advisors and wealth managers from the UK, US and Canada, the majority of whom advised or managed more than $100 million in AUM.

The survey found that, while smart beta awareness and adoption has grown since the previous FTSE Russell smart beta survey conducted in 2015, implementation of these strategies is still evolving and advisors are keen to better understand how they can use smart beta to its full potential.

Rolf Agather, managing director of North America research at FTSE Russell, said, “The results of our second smart beta advisor survey show that there is continued and growing popularity of smart beta strategies among retail advisors. There is also a significant opportunity for growth in the wealth market but more education is needed. Importantly, the use of smart beta strategies is evolving and not all markets view these strategies in the same way, highlighting the need for more consistent global education and insight on smart beta index-based strategies for investment and portfolio allocation.”

Across all three markets, there is a high awareness of smart beta strategies, yet a low level of familiarity. Among those surveyed, 68% in Canada, 72% in the UK and 79% in the US say they are “aware” of smart beta strategies, yet on average only 35% of those surveyed are “very familiar.”

The outlook for adoption of smart beta strategies is strong in all three countries, however, with more than half of the financial advisors and wealth managers surveyed in the UK and Canada and 40% of those surveyed in the US expecting to increase their usage.

In the US and Canada, financial advisors and wealth managers are looking for more information about smart beta strategies before increasing their usage, while in the UK they are sceptical as to their benefit, expressing concerns over predictability of performance (35% of non-users) and insufficient track records (32% of non-users).

Forty-seven per cent of respondents in the US say they “don’t know enough about” smart beta strategies, suggesting an opportunity for continued education.

The survey uncovered differences in the use of smart beta across the three countries but all respondents believe these strategies help meet both strategic and tactical needs and complement active and passive investment strategies.

Interestingly, findings indicate a continued evolution of how smart beta is being used. In the UK and Canada, 80% of respondents view smart beta as best sitting alongside active strategies while, in the US, 60% of advisors view smart beta as best sitting alongside passive strategies.

According to analysis by financial data provider Morningstar, there is now more than $1 billion invested in smart beta strategies, with ETF issuers BlackRock and Vanguard dominating the field, each with more than $100bn in smart beta products.

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