The second edition of the MJ Hudson Allenbridge Systematic Factor Market Review estimates that there are now USD1 trillion of assets invested in systematic factor strategies.
It is estimated that strategies created by investment banks represent approximately USD300 billion of that amount, with the balance invested in strategies managed by asset managers.
Key findings in the report included a market estimate that the factor market has breached the USD1 trillion barrier, invested in more than 2,200 strategies. Participants in the survey, alone, run a total of 2,213 strategies, with 700 of these having assets in excess of USD100 million, MJ Hudson Allenbridge says.
Most strategies are “smart beta” (long only strategies) but the number of “alternative beta” (long-short strategies) is increasing. 385 of the 615 strategies offered by asset managers are equity based, along with 507 of the 1,598 investment bank strategies, but multi-asset strategies have been a key feature of new product development.
The offerings of asset managers and investment banks differ from each other, in that banks typically offer a wide range of strategies as portfolio building blocks, whereas asset managers tend to concentrate in a smaller number of flagship strategies. Investors are often attracted to systematic factor strategies by the lower fees charged.
Average management fees for smart beta are 0.47 per cent at asset managers; investment banks charge average fees of 0.51 per cent, according to the report. Management fees are higher for long/short alternative beta strategies, on average, with asset managers charging 0.77 per cent and investment banks charging 0.65 per cent.
The firm writes that while transparency on fees is improving, a wide variety of charging structures are still employed by the banks in particular, highlighting the need for close scrutiny beyond headline rates when comparing strategies.
The report found that institutional investors, led by pension funds, have been the key source of assets for the industry and future growth is expected to come from multi-strategy products in particular.
The respondents report investor concerns over possible crowding of the strategies, as well as wide dispersion of strategy performance as possible impediments to further growth. The firm writes that despite the recent growth, the industry still lacks a common, coherent terminology as well as recognised performance benchmarks.
Odi Lahav, CEO of MJ Hudson Allenbridge says: “We are very pleased to publish this update on our 2014 research, which was the first to include information on systematic factor strategies offered by investment banks. Despite the market doubling to USD1 trillion since then, we believe that institutional investors looking to access smart beta and alternative beta products are generally not well supported by the investment advisory community.”