One in four institutional investors report using smart beta exchange-traded funds and adoption among non-users is likely to accelerate in the near future, according to a study conducted by Cogent Research.
The results reveal that nearly half (46 per cent) of institutional decision makers not currently using smart beta ETFs indicate they are likely to start using the products over the next three years, particularly institutional investors with assets in excess of USD500m.
Within the smart beta ETF category, low volatility funds have experienced the greatest growth in 2013: an impressive 99 per cent increase in assets. This trend is expected to continue as two-thirds (67 per cent) of institutional decision-makers not currently using smart beta ETFs indicate they are most likely to use low volatility funds moving forward. In addition to low-volatility products, nearly half (46 per cent) of non-smart beta ETF users anticipate using high dividend ETFs and over a third (34 per cent) plan on using fundamentally weighted investment strategies.
“We have been seeing increased interest in smart beta ETFs with various institutional segments, and the research findings confirm that increasingly institutions are implementing smart beta ETFs,” says John Hoffman, Invesco PowerShares director of ETF institutional sales and capital markets. “Smart beta ETFs make a lot of sense for institutional investors seeking lower costs, intraday liquidity, increased transparency, ease of implementation, and strategies that go beyond market cap weighting.”
Non-users indicate that the primary drivers of future usage include making tactical adjustments to asset allocation (42 per cent), accessing higher beta strategies (40 per cent), portfolio completion (40 per cent), and to reduce portfolio volatility (39 per cent).
“We educate both users and non-users about the many benefits of PowerShares smart beta ETFs, and these results reinforce our belief that these products are great investment tools for institutional asset managers as well as retail investors,” says Dan Draper, Invesco PowerShares managing director of global ETFs. “We’re very excited about the future potential of our investment category.”
