VanEck survey reveals active strategies losing their edge
The survey reveals significant increases in the adoption rate of smart beta strategies and further signals smart beta's displacement of active management through targeted outcomes.
ETF adoption on the increase among financial advisers
Financial advisers are increasingly using exchange traded funds (ETFs) in clients’ investment portfolios, with most planning to boost their use of ETFs over the next 12 months, according to a new survey of financial professionals conducted by VanEck.
The annual VanEck Australian Smart Beta Survey is the largest survey of its kind in the world, capturing investment trends in the Australian market. This year, the survey attracted almost 650 responses from financial advisers and brokers working in Australia. The survey reveals significant increases in the adoption rate of smart beta strategies and further signals smart beta’s displacement of active management through targeted outcomes.
Smart beta refers to investment strategies that have a targeted outcome, they track an index that goes beyond simple market capitalisation. Where smart beta ETFs outperform the standard benchmark they do so for a fraction of the cost of active strategies.
Arian Neiron, CEO & Managing Director – VanEck Asia Pacific, said: "Active fund managers have long said that in market environments such as the current one, where share prices are volatile and returns are expected to stay relatively low, an active approach is vital to best navigate the volatility and uncertainty. However, that’s not what we’re seeing. The recent SPIVA scorecard produced by S&P Dow Jones reinforces that. By way of example the 30 June 2022 SPIVA scorecard revealed 31.8% of Australian equity mid and small cap funds beat their benchmark indices in the six months ending 30 June 2022. Over the longer term 51% underperformed over 15 years. Advisers are seeking targeted investment outcomes in their portfolio construction process, employing smart beta ETFs, with flows into smart beta ETFs accelerating.
“The proportion of net flows going into smart beta strategies rose to 26.6% as at 31 August 2022, up from 20.2% a year ago, with that gain outpacing both active and market capitalisation strategies. Smart beta strategies now make up 15.2% of the total ETP industry, up 8% from the prior year, again outpacing growth in active and market capitalisation strategies,” Neiron said.
The VanEck Australian Smart Beta survey indicates this trend could continue. The survey reveals two in three financial professionals have increased usage of ETF’s over the last 12 to 18 months, with reduced total portfolio costs being the main driver. Over half of those surveyed, or 56%, said they are using smart beta products as a replacement for active management.
“Half of those surveyed plan to increase their smart beta allocation over the next year; the expected increase in usage will drive further growth of the ETF market in Australia as it heads towards a market capitalisation of $150 billion by end of 2022, of which portion smart beta ETFs are likely to account for 18%.
“Those who use smart beta are overwhelmingly happy with the product, with a whopping 99% satisfied with their smart beta investments, while 80% see smart beta investments as good value for money, up from 75% in 2021,” Neiron said.
VanEck is one of the world’s largest issuers of ETFs, managing in excess of $100 billion globally for individual and institutional investors. Founded in New York in 1955, VanEck is a pioneer in international investing and in gold funds, launching the first gold equities fund and the first gold ETF in the US.
In Australia, VanEck is one of the largest ETF providers in Australia and the world and is the premier leader in ‘smart beta’ investment strategies. We have 30 ETFs on ASX that focus on delivering superior performance through beyond-the-usual approaches and providing access to asset classes typically unavailable to Australian investors.