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More Evidence of a Smart Beta ETF Boom


Last year, smart beta ETFs attracted $65.1 billion in new assets, nearly double the $34.2 billion hauled in by the group in 2012. There is mounting evidence to support the notion that the smart beta or intelligent indexing boom still has plenty of room to run.

“Advanced beta strategies are playing a more influential role in some of the world’s largest portfolios. Forty-two percent of investors currently use advanced beta and another 24 percent plan to do so over the next three years,” according to a study by State Street Global Advisors, the second-largest U.S. ETF issuer.

The study, “Beyond Active and Passive, Advanced Beta Comes of Age,” indicates “seventy-five percent of the investors surveyed said that the strategies are an attractive alternative to both active and passive fund management and a powerful evolution in asset allocation strategies.”

“Advanced beta strategies play an important role in helping investors to construct holistic investment strategies while keeping risk and costs in check,” said Lynn Blake, CIO, global equity beta solutions at SSgA. “Our study found that more than half of institutional investors in North America and Europe will be using advanced beta strategies in the near future. The recent spike in equity market volatility, and a reduced appetite for active strategies, may encourage further adoption of advanced beta based on its track record of improving risk adjusted returns.”

SSgA’s smart beta findings jibe with those of rival ETF issuers.

Earlier this year, Cogent Research and Invesco’s (IVZ) PowerShares unit, the fourth-largest U.S. ETF issuer and one of the leading purveyors of smart beta funds, said a quarter institutional decision makers indicate they are already using smart beta ETFs, implying significant room for growth. Speaking of growth, “over the next three years, institutions plan on increasing their use of smart beta ETFs more than any other category (including market-cap weighted ETFs),” according  to PowerShares and Cogent. [Strong Future Seen for Smart Beta ETFs]

Although the number of smart beta ETFs is growing and some issuers, such as SSgA, First Trust and PowerShares, already offer expansive suites of such products, the U.S. trails Europe in adaptation of non-cap weighted fare.

“Europe is ahead of US institutional investors in adoption, allocation and measurement of advanced beta strategies with 25 percent of European respondents allocating 20 percent or more of equities in their portfolio to advanced beta as compared to four percent for North American respondents,” according to SSgA.

SSgA noted that 40% of investors using advanced beta strategies are using low volatility and low valuation products either combined or separately. [Loving Low Vol ETFs Again]

State Street offer low volatility products including the SPDR Russell 1000 Low Volatility ETF (LGLV) and the SPDR Russell 2000 Low Volatility ETF (SMLV) .

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.