Demand for smart beta indices across Europe is growing, according to research conducted for ETF provider Invesco PowerShares.
Existing smart beta users confirmed that, by 2017 the percentage of assets invested into smart beta products is expected to be 18%, double the allocation at the beginning of 2014. At a country level, respondents based in Germany, Italy and Switzerland expect at least a 100% increase in allocations, with respondents based in the UK, which leads the four markets in terms of current allocations, expecting an increase of just under 70% from 15% at the beginning of 2014 to 25% by 2017.
The research, that targeted traditional market cap weighted index and smart beta index users in Germany, Italy, Switzerland, and the UK, highlighted a strong appetite for smart beta strategies going forward, with 56% of respondents saying they would consider investing more in these strategies.
As smart beta strategies grow in prominence, the sector is likely to continue to see strong growth. In 2013, smart beta ETFs captured nearly a third of industry inflows and contributed a record USD65.1bn of inflows1 globally, which more than doubled the figure for the previous year. The European market in smart beta ETFs has more than doubled in 2014, expanding from EUR2.1bn to EUR4.6bn2 between January to September 2014.
These strategies are increasingly being used to compliment active strategies. The research reveals that 32% of existing smart beta users believe it creates an appealing new space between active and passive management and 29% believe it complements active strategies. Almost a third (30%) of respondents believe smart beta strategies can become mainstream. Furthermore, in comparison to other non-market cap weighted indices, 57% of respondents believe fundamentally-weighted indices give a more representative picture of the market.
As smart beta products become more popular, two thirds of respondents (66%) believe indexing strategies are increasingly important to their business going forward. There is a strong appetite for investing in non-market capitalisation weighted indices, (86%) of respondents from Italy believe these constitute a more intelligent way of index investing than traditional market capitalisation weighted indices, closely followed by two thirds (63%) of respondents in the UK. However the respondents acknowledged that the industry needs to invest in better education to support the growth of smart beta as a mainstream investment style.
Bryon Lake, Head of Invesco PowerShares – EMEA, says: “As the provider with the longest track record for managing smart beta ETFs, we have championed this strategy and our research reveals that Europe is ready to take advantage of the benefits. Not only are investors no longer forced to choose only from the market-cap weighted indices universe, but smart beta is very much seen to complement existing strategies in place. Our research has illustrated that big opportunities lie in the UK, Italy, Germany and Switzerland and in the institutional market as these products become increasingly mainstream.”
Invesco PowerShares was the first–to-market with Smart Beta ETFs. Since 2003 in the US and 2007 in Europe, Invesco PowerShares has been offering a selection of ETFs that track “next generation” indices that go beyond merely tracking a particular market. It offers an effective alternative to traditional market-capitalisation-weighted indexing, offering solutions with the objective to outperform through intelligent security selection and weighting.