Institutional investors are increasingly using smart beta exchange-traded funds, according to a study conducted by Cogent Research, a division of Market Strategies International.
The results reveal that more than half (53 per cent) of institutional decision makers will increase their use of smart beta ETFs over the next three years – higher than any other ETF category, including market-cap weighted ETFs (48 per cent).
“These results echo what we are hearing from our clients and confirms what we have seen with industry-wide flows: non-market cap weighted ETFs have captured 25 per cent of the equity ETF inflows year to date, despite representing only 12 per cent of the assets,” says John Hoffman, Invesco PowerShares director of ETF institutional sales and capital markets. “Furthermore, the research results show that interest in the smart beta category is being driven by a desire to improve risk-adjusted returns, reduce volatility and gain access to more sophisticated weighting methodologies.”
According to the study, larger institutions (those managing in excess of USD500m in assets) are twice as likely to agree that smart beta ETFs provide better risk-adjusted returns relative to market cap weighted ETFs – highlighting the focus on managing risk in today’s market.
“We are seeing an increasing amount of interest and usage of non-market cap weighted solutions among institutions,” says Dan Draper, Invesco PowerShares managing director of global ETFs. “The study results reveal that more than half of institutional decision makers agree that smart beta ETFs can be used to manage portfolio volatility.”
