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Smart beta increasingly used by financial advisors – FTSE Russell smart beta findings

Smart beta strategy implementation by advisors is prevalent and broadening, according to a new FTSE Russell retail financial advisor market survey. In scenarios where once only actively managed products were considered and used in investment portfolios, advisors are beginning instead to turn to smart beta strategies. Smart Beta: 2015 Survey Findings from U.S. Financial Advisors found that advisors are increasingly looking to harness the benefits of incorporating smart beta strategies into their investment portfolios. These benefits include downside market protection, lower volatility and increased alpha, among others.

Who are the advisors that most frequently tap smart beta strategies? The survey found that advisors who use smart beta tend to be younger, have a higher share of AUM in ETFs and alternative investments and have practices extending beyond the core activities of investment selection, asset allocation and financial planning. These advisors recognize the similarities between smart beta and actively managed funds; users of smart beta tend to blend these two approaches. In addition, the survey showed that when advisors are using smart beta products, more than 70% are using more than one approach. Once advisors begin using smart beta, they tend to broaden out their usage.

Smart beta strategies can potentially offer the advisor a number of benefits that actively managed products do, but for a lower cost. Current smart beta users are more likely to view smart beta as active management and they are more receptive to the newer smart beta approaches tested.

The most frequently used approach among those surveyed was a dividend approach, which weights companies by historical dividend yields, followed by a high quality investment approach. The survey found that 36% of advisors are using dividend approaches, with 35% seeking to use it in the future. As for high quality approach adoption, 27% of advisors currently use high quality and 40% are very likely to use it in the future, giving this approach the highest potential for future use among those tested.

Other smart beta approaches include fundamental, low volatility and equal weight, with the least popular of those tested among advisors being the momentum approach, which incorporates companies that have consistently shown strong performance for the prior 12 months.

The network of advisors who see the merit in adopting smart beta into their investment portfolios is growing and broadening. To learn more about how advisors are incorporating smart beta into their practices, review the complete findings here.

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