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Index IDEA: Increased popularity of multi-factor indexes

For its third annual global institutional smart beta survey, global index and data provider FTSE Russell recently asked 250 of the largest institutional investors across North America, Europe and Asia with more than $2 trillion in invested assets for their opinion on “smart beta” indexes. When asked what types of smart beta indexes they are currently using, survey respondents cited low volatility (46%), value (41%) and multi-factor combination indexes (37%) as the top three.

And a closer look at the historical back tested performance of one multi-factor combination index from FTSE Russell illustrates that multi-factor combination indexes can be useful tools for investors. The index was introduced last year and underlies an ETF offered by O’Shares. The performance of the index compared with its parent index the FTSE USA Index for the year-to-date, one, three, five and ten-year time periods as of May 27th is shown in the table below.

FTSE Russell Indexes: Historical Backtested Performance as of May 27, 2016

Source: FTSE Russell smart beta survey- 2016 global survey findings from asset owners. FTSE Russell data as of May 27th, 2016. Past performance is no guarantee of future results. Returns shown may reflect hypothetical historical performance. Please see the disclaimer for important legal disclosures.

Rolf Agather, managing director of North America research, FTSE Russell:
“Survey results this year reinforce what we are already seeing among our clients. They are using smart beta indexes to assist them in pursuing a wide range of objectives, notably return enhancement, risk reduction and improved diversification. In addition, they are beginning to consider the option of using a combination of multiple factors, not just a single factor, in a smart beta index to help achieve these objectives.”

Kevin O’Leary, Chairman of O’Shares, “Shark Tank” cast member and CNBC contributor:
“Comparing performance of the FTSE USA Qual/Vol/Yield Factor 5% Capped Index to the performance of the FTSE USA Index helps provide insight into the effects of selecting high quality, low volatility US stocks that pay consistent dividends. Multi-factor indexes like this which include stocks with specific characteristics are an important and innovative new tool for examining markets and creating investable products.” 

Over 90% of FTSE Russell smart beta survey respondents have either direct responsibility for selecting equity investments or play roles in teams that perform this function within corporations or private businesses (23%), government organizations (24%), unions or industry-wide pension schemes (18%), non-profit organizations or universities (14%). 63% of survey respondents manage defined benefit plan assets, 45% managed defined contribution plan assets and 14% manage endowment or foundation assets. 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.

For a deeper dive into key findings from the third annual FTSE Russell global institutional smart beta survey, click here.


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Views expressed by Rolf Agather and Kevin O’Leary are as of June 9 and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.

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No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.


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