BlackRock’s exchange traded fund (ETF) business iShares is projecting that smart beta ETF assets will reach USD1 trillion globally by 2020 and USD2.4 trillion by 2025.
With current smart beta ETF assets at USD282 billion, this reflects an annual organic growth rate of 19 per cent, double the growth rate of the overall ETF market. Minimum volatility and factor (multi and single) funds are expected to be key drivers of future growth and represent over 60 per cent of new smart beta flows through 2025.
BlackRock’s Factor-Based Strategies Group, led by Andrew Ang, PhD, oversees the broadest suite of factor-based products and capabilities, with more than USD142 billion assets under management. BlackRock’s iShares business is the largest provider of smart beta ETFs, managing over USD67 billion in ETFs across 96 products globally.
Smart beta ETFs have become increasingly popular strategies for investors seeking to manage risk and obtain precise exposure to historically return driving factors, and saw USD31 billion in new flows globally in 2015. Minimum volatility ETFs were a major contributor in 2015 with over USD11 billion of inflows, and have led the way in 2016 with a record-breaking USD12.6 billion of inflows year-to-date.
Martin Small, BlackRock’s Head of US iShares, says: “Smart beta ETFs are growing increasingly popular, as evidenced by their record flows in 2015 and the first quarter of 2016 with investors using them to manage risk and obtain precise exposure to historically return driving factors. In response to continued demand and strong expected future growth, BlackRock is introducing the iShares Edge MSCI Multifactor Sector ETFs. These funds represent the next phase of sector investing: using a factors-based approach to target companies with the potential to outperform their broader respective sectors over multiple market cycles.
“As a leader and innovator in smart beta investing, clients look to BlackRock for information and insight. In response, we’ve launched a range of educational tools to bring our clients greater clarity and help them to navigate the market. We’ve also consolidated our smart beta ETF products that provide precise factor exposures under a single, unified brand.”
Andrew Ang, Head of Factor Investing Strategies at BlackRock, says: “The rise of smart beta – propelled by advances in technology and data analytics – is helping to democratize factor investing, putting investment solutions once only accessible to large institutions within the reach of all investors.”
“Smart beta consists of long-only, benchmark driven strategies built to capture one or multiple factors while pursuing a variety of outcomes, such as reducing risk, enhancing returns or improving diversification. This investment style is predicated on the understanding that the risks and returns of all investments, no matter how nominally diverse, can be mapped to a common set of underlying factors. Today, these factors can be captured with cost effective and efficient smart beta ETFs.”