Institutional uptake of smart beta ETFs increasing

Jan 23rd, 2014 | By | Category: ETF and Index News

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One in four institutional investors report using smart beta ETFs, and adoption among non-users is likely to accelerate in the near future, according to a new study conducted by Cogent Research, a division of Market Strategies International.

Adoption of smart beta ETFs increasing among institutional asset managers

Dan Draper, managing director of global ETFs at Invesco PowerShares.

The results reveal that nearly half (46%) of institutional decision-makers not currently using smart beta ETFs indicate they are likely to start using the products over the next three years, particularly institutional investors with assets in excess of $500 million.

Within the smart beta ETF category, low volatility funds have experienced the greatest growth in 2013, with assets almost doubling. This trend is expected to continue as two-thirds (67%) of institutional decision-makers not currently using smart beta ETFs indicate they are most likely to use low volatility funds moving forward.

In addition to low-volatility products, nearly half (46%) of non-smart beta ETF users anticipate using high dividend ETFs and over a third (34%) plan on using fundamentally weighted investment strategies.

John Hoffman, director of ETF institutional sales and capital markets at Invesco PowerShares, a leading provider of smart beta ETFs, commented: “We have been seeing increased interest in smart beta ETFs with various institutional segments, and the research findings confirm that increasingly institutions are implementing smart beta ETFs. Smart beta ETFs make a lot of sense for institutional investors seeking lower costs, intraday liquidity, increased transparency, ease of implementation, and strategies that go beyond market cap weighting.”

Non-users indicate that the primary drivers of future usage include making tactical adjustments to asset allocation (42%), accessing higher beta strategies (40%), portfolio completion (40%), and to reduce portfolio volatility (39%).

Dan Draper, managing director of global ETFs at Invesco PowerShares, added: “We educate both users and non-users about the many benefits of PowerShares smart beta ETFs, and these results reinforce our belief that these products are great investment tools for institutional asset managers as well as retail investors. We’re very excited about the future potential of our investment category.”

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