Demand for low vol ETFs pushes smart beta AUM to record high

Aug 3rd, 2016 | By | Category: Fixed Income

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Assets invested in smart beta exchange-traded funds and exchange-traded products listed globally have reached a new high of $429.0bn following net inflows of $5.7bn to the sector during June, according to ETF research consultancy firm ETFGI.

Deborah Fuhr ETFGI

Deborah Fuhr, managing partner at ETFGI.

Significant demand was seen for ETFs/ETPs with exposure to volatility factors with $2.1bn in new flows during June as investors responded to heightened uncertainty in global equity markets. Dividend factor based products were also popular with $1.7bn in net inflows, followed by value factor based products with $1,5bn.

Speaking directly with ETF Strategy, Deborah Fuhr, managing partner at ETFGI, said: “The preference for volatility factor ETFs/ETPs, with $2.2bn in net inflows during June, shows that investors are seeking to better manage their risk exposure during a period of heightened market uncertainty while significant net inflows of $1.7bn into dividend factor ETFs/ETPs serves as a reminder that investors are still hunting for income opportunities in a prolonged low-yield environment.”

iShares gathered the largest smart beta ETF/ETP net inflows in June with $4.1bn, followed by Vanguard with $1.2bn and PowerShares with $672m.

Commenting on the regional distribution of net inflows for smart beta ETFs/ETPs during June, Fuhr notes that geopolitical risks in Europe have driven flows in favour of US market exposures: “Despite US-centric risks, such as the possibility of rate increases by the Federal Reserve or the uncertainty surrounding the presidential elections, investors still favoured the world’s largest economy in June with $6.3bn of net inflows into US-exposed smart beta ETFs/ETPs.

“This was in direct contrast to the $1.7bn of net outflows from smart beta ETFs/ETPs linked to European developed markets, highlighting investor concern over geopolitical risks in the region, particularly the still indiscernible impact of the UK’s decision to leave the European Union,” she said.

Year-to-date (YTD) as of the end of June 2016, smart beta ETFs/ETPs have seen net inflows of $16.1bn with volatility factor based products gathering the largest net inflows with $14.3bn, followed by value factor based products with $6.8bn and dividend factor based products with $3.1bn.

Manuela Sperandeo, iShares Head of Specialist Sales EMEA, told ETF Strategy: “As the number of available products has grown, we have seen investors adoption spread across a number of strategies. So, while dividend-weighted strategies still represent the majority of the AUM, we have observed the strongest growth in other single factor strategies, such as minimum volatility, which have gathered assets in excess of $15.4bn this year alone (as of the end of July). The popularity of minimum volatility strategies can be explained by its potential for risk reduction in volatile equity markets, a very desirable outcome for many investors given recent market turmoil.

“Other defensive strategies such as quality have also gained popularity, while investors more interested in pursuing performance are turning more and more to solutions that combine return-seeking factors, like the iShares Edge Multi-Factor products we launched last year (which are now in excess of $1.5bn in AUM).”

YTD, iShares gathered the largest smart beta ETF/ETP net inflows with $19.0bn, followed by Vanguard with $5.2bn and Charles Schwab Investment Management with $2.1bn net inflows.

Commenting on the success of the firm’s smart beta ETF range, Sperandeo notes: “Smart Beta and, more broadly, factor investing, has been a focus area for BlackRock for over 40 years, since launching the first factor fund in 1971 and driving innovation in the category since. In the ETF space, BlackRock has established its presence with a comprehensive range of smart beta exposures, encompassing both single and multi-factor ETFs across different geographical exposures (both developed and emerging markets equities).

“The recent success of the iShares Smart Beta range is therefore the result of many years of investment the firm has made into research and product development efforts in this space. We believe these strategies have the potential to deliver better outcomes for investors’ portfolios and ETFs can be a very effective vehicle to access them in a transparent and cost effective way.”

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