A recent study released by leading index provider FTSE Russell shows that European asset owners are leading in the adoption of smart beta indices.
Of those European asset owners surveyed, 52% have adopted smart beta indices, compared to 28% in North America and 38% in Asia.
According to the third annual global institutional market survey – Smart Beta: 2016 Global Survey Findings from Asset Owners – FTSE Russell shows that smart beta index adoption rates in Europe have been the highest globally over the past three years.
The firm surveyed 253 assets owners from North America (49%), Europe (33%) and Asia (13%) in January and February 2016. A range of entities were engaged including corporations, government entities, union or industry-wide pension schemes and non-profits to add diversification to the survey findings. Over 90% of survey respondents have either direct responsibility for selecting equity investments or play roles in teams that perform this function. Total assets under management for survey participants was estimated at over $2tn globally.
Of those European asset owners surveyed, 52% have adopted smart beta indices, compared to 28% in North America and 38% in Asia. The segment with the largest growth in adoption, from 15% in 2014 to 47% in 2016, has been European asset owners with under $1bn in assets.
European asset owners, particularly those who have had smart beta allocations for more than two years, were a significant driver of the trend toward larger smart beta allocations; nearly seven in 10 surveyed have over 20% of their equity portfolio invested in smart beta investment vehicles.
Peter Gunthorp, Managing Director of European Research, FTSE Russell, commented: “The survey demonstrates accelerating interest in and implementation of smart beta indices among global institutional asset owners. While many asset owners and consultants, particularly those in Europe, have increased their understanding of smart beta, continuing innovations in other asset classes and the multi-factor arena underscore the need for continuing information and education. We hope the results of the survey provide a degree of insight for all market participants with an interest in smart beta.”
The results of the survey suggest that continued growth in smart beta indices will be driven by those asset owners who are currently evaluating strategies for first time utilization, as well as by asset owners with existing allocations making larger investments in smart beta investment vehicles over time.
The survey also showed that return enhancement and risk reduction continue to be the primary objectives for use of smart beta by asset owners; however, cost savings have become more important in 2016 than in prior years.
Furthermore, smart beta index-based investments are increasingly being considered as part of an active allocation, with 35% considering it an exclusively active strategy, up from 22% last year, suggesting the smart beta space is evolving as the strategies are gaining increasing prominence across a range of functions.