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ETF survey finds multifactor index products most popular with US advisers

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FTSE Russell’s latest Smart beta: 2015 survey reports findings from US financial advisers n ‘smart beta’ or ‘smart beta products’, defined by the firm as investable products such as a mutual fund or ETF that closely tracks one of these indexes. 

Rolf Agather, Managing Director of Research at the firm writes that advisers have increasingly embraced smart beta as a way of incorporating new ideas within their clients’ portfolios. “But more choice and flexibility carries with it a need for more education,” he says. The study found that there is still some confusion about the definition of smart beta and the distinction between active and passive investing.
 
“The survey reveals that some advisers consider smart beta as a kind of active management. While the selection of a smart beta product for a client can require almost as much due diligence as selecting an active manager, it is important to keep in mind that the underlying smart beta index is transparent and rules-based; there is no active decision as to what securities are included or excluded within the index,” Agather writes.
 
Comparison of advisers’ perceptions on smart beta with results from the previous surveys of institutional asset owners reveals that advisers’ top two smart beta products are Dividend/Income Yield and High Quality.
 
For institutional asset owners, the top smart beta product has been Low Volatility for two years in a row, with either Fundamental or Multifactor being the second.
 
Agather writes: “The contrast reflects the differing needs of advisers’ clients versus the needs of institutional asset owners. A similarity is that both advisers and asset owners are keen to explore multifactor index products.”
 
The survey also reveals that more than two-thirds of the advisers are currently using a variety of smart beta products in their practices. “Yet, with less than one in five advisers reporting that they are very familiar with the term ‘smart beta’ it is evident that smart beta education is still needed,” Agather writes.
 
“Providers of indexes and smart beta products, including exchange traded funds (ETFs), need to ramp up their educational programs focused on the advisor community,” he concludes.
 

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