• Smart Beta

    Smart beta strategies displace active management

    Arian Neiron, Managing Director
    10 September 2018
     

    Most financial professionals (57%) are now using smart beta strategies in portfolios compared to only a third (37%) in 2016 according to VanEck's third annual smart beta survey. The key motivations to start using a smart beta strategy are to achieve outperformance, achieve better risk adjusted returns, reduce volatility and reduce costs.

    The survey found the majority (68%) of financial professionals are using smart beta strategies to replace actively managed funds. Financial professionals are realising that active funds often lag their benchmark so they are shifting to smart beta strategies as a more cost effective and transparent way to achieve their investment and performance objectives.

    Most respondents (88%) believe smart beta strategies will outperform (53%) or perform in line with (35%) active strategies compared to 12% who think smart beta strategies will marginally underperform. No respondents think smart beta strategies will significantly underperform active funds.

    The most popular smart beta strategies used by financial professionals are equal or alternative weighted strategies, single factor quality strategies, multi-factor combinations and dividend, income or yield weighted strategies. Most financial professionals are using these smart beta strategies to access Australian equities and international equities, followed by Australian fixed income.

    While there is a strong trend towards using smart beta strategies for Australian equity and international equity exposure, we expect financial professionals to diversify into other sectors and asset classes as the use and variety of smart beta strategies continues to grow.

    The survey found that just under half or 41% of respondents are currently invested in or considering an ESG strategy. The top motivations for investing or considering an ESG strategy are environmental impact, client demand and social impact.

    Satisfaction rates among smart beta users is high according to the survey. Seventy-four percent of respondents using smart beta strategies are extremely or very satisfied with their smart beta investments, an increase from 68% in 2016. Sixty-six percent of respondents now agree that smart beta represents good value for money, compared to 54% in 2016.

    Awareness of smart beta strategies has increased considerably since the survey began, with 93% of respondents familiar with smart beta, an increase from 81% in 2016. The survey found 84% of financial professionals are using ETFs.

    ETFs are at the forefront of smart beta investing combining the best aspects of active and passive management by tracking indices that deliver a chosen investment outcome, while retaining the low cost, transparency and liquidity of passive investing. Smart beta ETF adoption rates have reached record highs globally and now, one in three ETFs listed on ASX are smart beta strategies.

    Globally, at the end of July 2018, there were 1,235 smart beta equity ETFs/ETPs, with total assets of US$659 billion, from 148 providers on 40 exchanges in 32 countries. Year-to-date smart beta equity products have experienced net inflows of US$35.5 billion[1].

     

    About VanEck Smart Beta Survey
    These results are from the third annual VanEck Smart Beta Survey conducted in July 2018. The first survey was launched in July 2016. The responses are based on the survey of 153 Australian-based financial professionals working in an advisory capacity in Australia. The majority of respondents in this survey work for independent financial services firms (65%), larger organisations owned by a bank or wealth manager (15%), broking firms (14%) and other (5%). The majority of survey respondents are a financial planner (40%); CEO, managing director, owner or partner (23%); broker, trader or implementation manager (18%); or portfolio manager, researcher, analyst (9%).


    General information only

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    [1] ETFGI Smart Beta ETFs statistics, July 2018