Smart Beta entering mainstream

In 2012, there were five smart beta ETFs listed on the ASX with $250 million invested. They predominately focused on dividends.

Today that figure is $3.2 billion. In Australia, this is a five year compound annual growth rate is 67%. There are now 34 smart beta ETFs across a range of asset classes and strategies including factor based and alternate indexing such as equal weight.

Australia is catching up with the rest of the world. In the US, for example, smart beta ETFs capture around 25% of ETF flows. Investors are realising that smart beta ETFs combine aspects of active and passive management by tracking indices that deliver a targeted investment outcome. These ETFs retain the transparency, liquidity, ease and rules-based approach of market-capitalisation based index ETFs, with the added advantage of being specifically designed for investment purposes, something traditional market-capitalisation benchmarks are not.

According to VanEck’s second annual survey of Australian investment professionals, performance is the most important consideration for investing in smart beta. The second most important factor is cost. The number of advisers using smart beta to outperform, replacing their asset manager is the same as the number of advisers using smart beta to lower portfolio costs, replacing higher fee active managers.  

The key findings of our survey are:

• Motivations to use smart beta are strong, based on:
• Performance and risk – More advisers who are considering smart beta are assessing its performance and risk outcomes, while those who already use it view its performance positively. Most advisers are assessing smart beta portfolios over many months before investing and are considering the track records of strategies that have now three plus years of performance;
• Low fees – Many are attracted to the different investment outcomes smart beta offers within a low cost passive construct;
• Increasing adoption – Smart beta is being used as a replacement for both passive and active strategies. We expect continuing growth in smart beta to be driven by the increasing numbers of advisers currently evaluating it as well as those with existing allocations making larger investments over time;
• Increasing familiarity – There is a high willingness to use smart beta strategies but the majority of financial professionals don’t currently know enough about it to invest. For fund managers promoting smart beta products, education and evidence of investment outcomes is paramount.

To help investors capitalise on the benefits of smart beta ETFs we have developed a range of free educational materials which also entitle advisers to free CPD points. Click here to access.

We invite you to have a look around and learn about the advantages smart beta strategies can offer your portfolios.

http://www.vaneck.com.au/smartbeta

^{This information is issued by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’). This is not a solicitation to buy or an offer to sell shares of any investment in any jurisdiction. It is general information only and not financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Before making an investment decision in relation to any VanEck funds, you should read the relevant PDS and with the assistance of a financial adviser consider if it is appropriate for your circumstances. PDSs are available at www.vaneck.com.au or by calling 1300 68 38 37.}