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Use of factor-based ETFs to increase, says survey


Despite concern in recent months that select exchange-traded fund (ETF) strategies are becoming expensive, 80 per cent of respondents to a PowerShares survey indicated that they are not worried about a potential bubble in factor-based ETFs.

Instead, 100 per cent of participants to the survey, which was carried out at the MorningStar ETF Conference in Chicago, indicated that they plan to at least maintain their current levels of factor-based exposure, with 56 per cent of those respondents looking to increase their allocations of factor-based strategies within the next 12 months.
Despite looming uncertainty of the Presidential election and the Federal Reserve's interest rate timeline, financial professionals seem confident that precise factor strategies may help investors adequately navigate the market in the year ahead.
Survey respondents demonstrated further confidence in factor-based ETFs by characterising the growing trend as "the next wave of smart beta investing."
Interest in smart beta ETF investing began more than 10 years ago. In May 2003, PowerShares pioneered the world of factor-based, alternatively weighted ETFs, which later became known as smart beta. In 2006, one of the world's largest asset managers, Invesco, acquired PowerShares to leverage the power of delivering these strategies in an ETF wrapper that blends the positive characteristics of active and passive management while improving the toolbox of options available to investors.
"As we celebrate the 10-year anniversary of Invesco acquiring PowerShares, I think it's very encouraging to see advisers and investors looking beyond the noise to see the power behind factor-based ETFs," says Dan Draper, global head of PowerShares. "While some have criticised individual factors for underperforming at times, the power of these strategies is best leveraged when two or more factors are combined to help smooth out investment returns over the long run."
Survey participants echoed these sentiments, with nearly half saying that they are using factor-based ETF strategies for greater diversification (45 per cent) and to dampen portfolio volatility (43 per cent).
Of those that responded, less than 15 per cent indicated that they are using factor-based investing strategies to implement market forecasts in client portfolios.

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