MSCI has reported strong net inflows in 2016 to exchange-traded funds linked to its factor indices. As of 30 September 2016, global factor ETFs attracted nearly $51bn in net inflows, with those linked to MSCI’s factor indices capturing $17.5bn, approximately one third of that share.
Diana Tidd, MSCI’s Head of Index Products.
Factor indices target stocks with certain characteristics and are designed for use in traditional, passive and active mandates. Through a systematic rules-based process, the indices isolate exposure to factors which have historically earned a risk premium over long periods of time. MSCI’s factor-based suite include indices with exposure to low volatility, value, low size, high dividend yield, quality and momentum.
Notably, MSCI has reported the most significant growth in assets came from ETFs linked to its minimum volatility indices, which grew by 122% to $35.4bn year-over-year. This is reflective of a growing demand by investors for new tools to manage increasing levels of equity volatility, which has become even more relevant by surprise market events such as Brexit or Trump’s election victory. Investors are also increasingly turning to steady, dividend-paying industries such as utilities and real estate, which make up a chunk of low-volatility ETFs, as a means to boost income in a persistent low yield environment.
Overall, 68% of the total equity ETF assets among low volatility ETFs globally are linked to MSCI indices, making the firm a leader in this category.
Source: MSCI.
MSCI reports that over 850 equity ETFs globally are tracking MSCI indices with over 175 of these dedicated to factor exposures.
Diana Tidd, MSCI’s Head of Index Products, commented: “This has been a monumental year for MSCI based on the record number of ETFs that track our indices. Our innovative factor index offering, combined with the strength of our top quality brand, continue to make MSCI indices the first choice of ETF providers around the world.”
The popularity of factor-based investments looks set to continue as recent research shows increasing interest, and high satisfaction rates, in these strategies. A study conducted by Invesco PowerShares showed that smart beta as an investment strategy is rapidly growing in popularity among European investors – 71% of survey respondents believe smart beta strategies will become a widely accepted investment over the next few years, compared to 60% of investors who held the same conviction in 2015.
Another survey of 180 European investment professionals conducted by EDHEC-Risk Institute and commissioned by Amundi ETF, reported a satisfaction rate of 86% among smart beta users. When asked how smart beta has improved their investment processes, 81% of investors believe smart beta indices enhances diversification, and 79% think diversification across multiple strategies allows a reduction of risk and adds value.
MSCI factor indices now attract more than $170bn in benchmarked assets globally.