We use cookies to support features like login and allow trusted media partners to analyse aggregated site usage.
To dismiss this message and allow cookies to be used, please click "Continue".

Continue

Features

Twitter board

Follow us
  • More and more pension schemes are increasing their allocations to private equity, but will the illiquid strategy br… https://t.co/8l8TI75r9v23 hours ago
  • Border to Coast Pensions Partnership CEO Rachel Elwell tells Mona Dohle about the challenge of developing a common… https://t.co/nQZfFveQdzyesterday
  • Out now- The portfolio institutional October issue featuring our cover on ESG and fixed income: Breaking new ground… https://t.co/hnmwYclXS52 days ago
  • Friday View: ESG in fixed income: The new frontier - LGPS bolster infrastructure collaboration - EM Roundtable: The… https://t.co/zxvEKaZkoM5 days ago
  • Local government pension scheme (LGPS) pool Border to Coast has appointed the first external managers for its £1.2b… https://t.co/eBAbx0ubzJ5 days ago
  • "Investors seduced by the impressive growth forecasts for emerging market economies should prepare themselves for a… https://t.co/7nAnrL8s7t7 days ago
  • "New RPMI Railpen chief investment officer Richard Williams talks to Mona Dohle about restructuring the scheme’s in… https://t.co/T1Xgvnx6Y410 days ago
  • Friday View: Pension funds turning to smart beta - Europe's fund managers ready for Brexit - Master trust rules rai… https://t.co/wZS8qe41Ci12 days ago
  • "The UK leaving the European Union will have a limited impact of the continent’s fund management industry, a former… https://t.co/tel0BRmGKX12 days ago
  • Pension schemes have had enough of high fees and poor returns. Is smart beta their chance of something better? Re… https://t.co/CzqPANU8D814 days ago
  • Read our latest roundtable where we brought fund managers, consultants and trustees together to discuss diversified… https://t.co/3TRGdybVwX16 days ago
  • Friday View: Lothian's alternative to pooling - Master trusts: The consolidation game - Whistle blower revelations… https://t.co/jbU9tbveK219 days ago
  • New authorisation rules are driving consolidation among master trusts, but what effect will this have on the DC mar… https://t.co/wQcgDpIvzs23 days ago
  • Friday View: Piecing together the pooling puzzle- DGF Roundtable - Royal Mail names pensions boss -LGPS Central sel… https://t.co/DPfZ3WUv6K26 days ago
  • portfolio institutional is launching a new series on LGPS pooling, tracking changes to investment strategies and up… https://t.co/Ld04PZ2TNK28 days ago
  • Friday View: ESG: What lies beneath? - Industry backs DWP's ESG push - LGPS Central CEO to step down - Railpen hire… https://t.co/S3knBieob033 days ago
  • Out now- The portfolio institutional September issue feat our cover on ESG: What lies beneath? -Interview: Railpe… https://t.co/x9EYxDVXEl37 days ago
  • Friday View: LGPS pool appoints CIO - Jack Dromey on cost reporting - TPR hires former FCA director - NEST issues p… https://t.co/aNVGQqK35Z40 days ago
  • RT @AonRetirementUK: How prepared is your portfolio? Read a write-up of the discussions at our recent event with @portfolio_inst, along wit…43 days ago
  • "Shadow pensions minister Jack Dromey comments on the need to set compulsory standards for cost reporting." Read m… https://t.co/vH1gGZBm1q43 days ago

Strategy

Smart beta: A passive view

Smart beta: A passive view

Lynn Strongin Dodds
Friday 17th November 2017

With cash continuing to pour into smart beta ETFs, Lynn Strongin Dodds takes a closer look.

“Smart beta strategies allow investors to differentiate the risk levels in their portfolios where adding factors like quality and income can result in low volatility portfolios.”

Mark Raes, BMO Global Asset Management

Although smart beta or factor-based investing has been an embedded fixture on the active investment landscape for many years, their promise to deliver outperformance over the long term has pushed fund manufacturers into overdrive. This is particularly true in the exchange-traded product (ETP) space which is becoming increasingly crowded with several variations on a theme.

The trend is part of the wider movement which is reflected in Invesco’s second annual Global Factor Investing Study that surveyed 108 pension funds, insurance companies, sovereign wealth funds, consultants and other investors representing more than $7trn in assets. It found institutional investors currently allocate 17% of their portfolios to factor investing, up from 15% in the 2016 study. Over the next five years, the figure is expected to rise to 18%.

PASSIVE GAINS

Although the total $6trn globally invested in these funds is a pinprick compared to the $24trn of the assets held in active funds, number crunching from Bank of America Merrill Lynch shows that from 2009 to 2016, outflows surpassed a record $200bn. This is because many actively managed funds did not generate the promised returns in post financial crisis world and passive managers stole a march as the spotlight grew brighter on their charges.

Regulators such as the UK’s Financial Conduct Authority (FCA) are also providing an impetus with their recent far-reaching investigation into the fund management industry’s competitive streak and whether active managers are offering value for money. The watchdog estimated that, over 20 years, a £20,000 investment in a passively managed fund tracking the FTSE AllShare index could yield a return 44% larger than that of an actively managed equivalent.

Spotting an opportunity, the ETF providers have wasted no time in capitalising on the opportunity. The latest report from research and data provider ETFGI shows that globally in the first eight months of the year assets under management jumped by 18.3%, in smart beta exchange-traded funds and products culminating in a new high of $630.39bn, with a five-year compounded annual growth rate of 31.5%.

Breaking the figures down, not surprisingly the more mature and developed US market captured the lion share with a hefty $559.41bn followed by Europe’s $46.46bn. While this accounted for only roughly 8% of the assets invested in total ETFs in the region, the momentum has gathered pace with August marking the 18th consecutive month of increases in Europe. On average 10% to 15% of monthly net inflows are being directed to this umbrella of products.

“If you look at the figures for August, there is a strong upward trajectory and the EMEA region is playing catch-up,” says Manuela Sperandeo, head of iShares specialist sales for EMEA at Blackrock.

“I think this will continue because of some tailwind we’re seeing in the region, such as the shift to fee-based advisory models and the broader MiFID regulation. In general investors are looking for new index solutions based on factors, to complement and at times substitute their traditional active mutual fund allocations.”

Page: 1 2
0

Leave your comment

View our comments policy

Please login or register with us to leave a comment. It's completely free!