72% of asset owners are using or actively evaluating smart beta....


62% with existing smart beta allocations evaluating additional indexes

Percentage using five or more smart beta indexes up 10 fold in 2 years

Europe leads in smart beta index adoption

FTSE Russell today confirmed a turning point in the consideration and implementation of smart beta indexes among global institutional asset owners. According to its third annual global institutional market survey – Smart Beta: 2016 Global Survey Findings from Asset Owners – FTSE Russell confirms that the percentage of asset owners currently evaluating smart beta has doubled from 15% at the first survey in 2014 to 36% in 2016, and 62% of asset owners with an existing smart beta allocation are now evaluating additional allocations. The strongest growth in smart beta adoption is among asset owners with less than $1 billion in assets.

In addition to marking a turning point in smart beta evaluation for global asset owners, results from this year’s survey detail important developing trends in asset owners’ views and usage of smart beta. The percentage of asset owners using five or more smart beta indexes increased significantly, from two percent in 2014 to 21% in 2016. While low-volatility and value factor indexes still lead in asset owner implementation, adoption of multi-factor combination indexes has nearly doubled in the last year and is now a close third. And close to 70% of asset owners take a long view on smart beta, planning to use smart beta indexes five years or longer to help achieve investment objectives.

Rolf Agather, managing director of North America research, FTSE Russell:
“The survey demonstrates accelerating interest in and implementation of smart beta indexes among global institutional asset owners. While many asset owners and consultants have increased their understanding of smart beta, continuing innovations in other asset classes and the multi-factor arena underscore the need for more information and education. We hope the results of the survey provide a degree of insight for all market participants with an interest in smart beta.”

The third annual survey was conducted in January and February 2016. The 253 asset owners included this year (up from 214 last year and 181 in 2014) are drawn from North America (49%), Europe (33%) and Asia (13%). The global research team at FTSE Russell, a pioneer in smart beta through predecessors FTSE Group and Russell Indexes, engaged a mix of organizations including corporations, government entities, union or industry-wide pension schemes and non-profits to gather these findings. Total assets under management for survey participants is estimated at over $2 trillion globally.

Other key survey findings:

Outlook. Survey results suggest that continued growth in smart beta indexes will be driven by those asset owners who are currently evaluating smart beta indexes, as well as by asset owners with existing allocations making larger investments in smart beta investment vehicles over time.

Why smart beta? Return enhancement and risk reduction continue to be the primary objectives for use of smart beta by asset owners: cost savings are more important in 2016 than in years past. 

Smart beta strategies evolving. Investment strategies employed by asset owners based on smart beta indexes have evolved over time, with an increasing share using high-quality, momentum and multi-factor strategies. And smart beta index-based investments are increasingly being considered as part of an active allocation, with 35% considering it an exclusively active strategy, from 22% last year.

Vehicles for strategic & tactical implementation. Separate accounts are the most preferred vehicle for strategic implementation of smart beta, driven by demand from asset owners with more than $1 billion in assets. For tactical implementation of smart beta, asset owners are using a wide range of vehicles, including internal management of assets, separate accounts, ETFs and CITs (collective investment trusts). 

Evolving role of external investment managers and consultants. The roles assumed by investment managers, consultants and index providers in the evaluation of smart beta vary depending on AUM tiers of asset owners. External investment managers are most extensively engaged with asset owners under $1 billion in AUM; consultants with asset owners between $1 billion to $10 billion in AUM; and index providers with asset owners with $10 billion or more in AUM.

Survey background and methodology:
Over 90% of survey respondents have either direct responsibility for selecting equity investments or play roles in teams that perform this function. This sample crosses a wide mix of organization types – corporations or private businesses (23%), government organizations (24%), unions or industry-wide pension schemes (18%), non-profit organizations or universities (14%).

The rest is a mix of insurance companies, sovereign wealth funds, healthcare organizations and family offices. 63% of survey respondents manage defined benefit plan assets, 45% managed defined contribution plan assets and 14% manage endowment or foundation assets. Respondents also include asset owners with insurance general accounts, sovereign wealth funds and other types of institutional entities.

The breakdown in assets under management for survey respondents was 20% for asset owners with less than $1 billion, 46% between $1 billion and $10 billion and 34% with more than $10 billion in assets under management. Total assets under management for survey respondents this year is estimated at over $2 trillion.



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