Smart beta exchange-traded fund assets will reach $1tn globally by 2020 and $2.4tn by 2025, according to a recent report by BlackRock’s iShares. With current smart beta ETF assets at $282bn (Bloomberg 31 March 2016), the provider’s projections reflect an annual organic growth rate of 19%, double the growth rate of the overall ETF market.
Martin Small, Managing Director and Head of US iShares.
Smart beta ETFs have become increasingly popular as investors look to better manage risk and obtain precise exposure to specific factors that have historically driven returns. Minimum volatility ETFs were a major contributor in 2015 with over $11bn of inflows, and have led the way this year with a record-breaking $12.6bn of inflows as of 10 May 2016.
According to BlackRock’s Global Business Intelligence Report, minimum volatility and factor (multi and single) funds are expected to be key drivers of future growth and represent over 60% of new smart beta flows through 2025.
Against this backdrop of expected growth, BlackRock will be launching a series of initiatives to enhance the smart beta investing experience for its clients. These include a newly launched website (BlackRock.com/factors) which provides educational content, tools and analytics to help clients better understand factor investing and smart beta strategies. Additionally, BlackRock will also be rolling out an iShares smart beta guide, helping to educate investors how to evaluate and implement factors in smart beta strategies.
iShares have also recently launched a suite of nine smart beta ETFs on the Bats ETF Marketplace that cover sector specific exposure to the US economy. These funds select and weight firms based on proven drivers of returns such as value, quality, momentum and size.
Martin Small, BlackRock’s Head of US iShares, commented in a statement: “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, added: “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.”