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Index IDEA: Survey says low vol, value, multi-factor most popular smart beta indexes

Global index provider FTSE Russell recently asked 250 of the largest institutional investors across North America, Europe and Asia with more than $2 trillion in invested assets for their opinion on “smart beta” indexes and investment strategies based on them. For purposes of its annual survey, FTSE Russell defines a “smart beta” index as a market index which is not traditionally market cap-weighted, but rather built on other approaches such as alternative weighting, selecting for single factors or combining multiple investment factors.

When asked what types of smart beta indexes they are currently using, survey respondents cited low volatility, value and multi-factor combination indexes as most popular. Still popular but further down the list were fundamental, momentum and high quality indexes. And recent asset flows support this trend. According to US ETF reference and analytics data provider XTF, part of the London Stock Exchange Group, flows into US-listed exchange traded products based on low volatility indexes lead all others in their enhanced ETF category in the second quarter as of May 20.

Rolf Agather, managing director of North America research, FTSE Russell:
“Survey results this year reinforce what we are already seeing among our clients. They are using smart beta indexes to pursue a wide range of objectives, notably return enhancement, risk reduction and improved diversification. The types of smart beta indexes that are most popular right now can be used to help achieve these objectives.”

Source: FTSE Russell smart beta survey- 2016 global survey findings from asset owners.

Over 90% of FTSE Russell smart beta survey respondents have either direct responsibility for selecting equity investments or play roles in teams that perform this function within corporations or private businesses (23%), government organizations (24%), unions or industry-wide pension schemes (18%), non-profit organizations or universities (14%). 63% of survey respondents manage defined benefit plan assets, 45% managed defined contribution plan assets and 14% manage endowment or foundation assets. The breakdown in assets under management for survey respondents was 20% for asset owners with less than $1 billion, 46% between $1 billion and $10 billion and 34% with more than $10 billion in assets under management. Total assets under management for survey respondents this year is estimated at over $2 trillion.

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Views expressed by Rolf Agather are as of May 26 and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.

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