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Global asset owners at a turning point with smart beta adoption

Global asset owners at a turning point with smart beta adoption

By: Rolf Agather, Managing Director of Research

Smart Beta has come a long way in a short time. Not long ago its efficacy was hotly debated and yet now industry leaders are predicting global assets to reach $1 trillion by 2020.[1] Has smart beta reached a turning point? Now in its third year, our annual survey of global institutional asset owners indicates indeed it has. 

According to the new global institutional market survey, Smart Beta: 2016 Global Survey Findings from Asset Owners, 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.

Source: FTSE Russell

For the last three years, we have recruited asset owner decision makers from across a broad spectrum of AUM tiers and at a variety of stages in their evaluation of smart beta. And each year, participation by global asset owners has increased, from 181 respondents our first year to over 250 asset owners responding in 2016. Respondents are drawn from North America (49%), Europe (33%), Asia Pacific (13%) and other regions (4%) and have estimated total AUM of more than $2 trillion.

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 use of smart beta. The percentage of asset owners using five or more smart beta strategies 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 strategies 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 hold strategies five years or long to achieve investment objectives.

Other key survey findings:

  • Outlook. Survey results suggest that continued growth in smart beta will be driven by those asset owners who are currently evaluating smart beta indexes, as well as by asset owners with existing allocations marking larger investments in smart beta 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. Smart beta strategies employed by asset owners have evolved over time, with an increasing share using high-quality, momentum and multi-factor strategies. And smart beta is increasingly being considered part of an active allocation, with 35% considering it an exclusively active strategy, up 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.

The 2016 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.

Watch this space. It should continue to be a quite exciting and engaging one for market participants in the coming years.


[1] Source:

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