Skip to main content

You are here

Blog Listing Page

Institutional asset owners focus on multi-factor, ESG, in 2018 smart beta survey

By Rolf Agather, managing director of North American research

After spending five years researching global institutional asset owners’ evaluation and adoption of smart beta index-based investment strategies, FTSE Russell is able to not only reconfirm the long-term growth in its awareness and usage, but also highlight recent trends that continue to emerge. Surveying 185 asset owners across North America (54%), Europe (31%), Asia Pacific (11%) and other regions (4%), our newly released 2018 findings offer unique insight on how the preferences and needs of global asset owners are changing.

It’s no debate that smart beta has arrived in global investment portfolios, with 91% of asset owners reporting either an existing allocation or plans to evaluate a smart beta strategy in the next 18 months. This is a notable increase from 2014 when the survey was first fielded and only 75% of asset owners reported an existing allocation or were considering implementation. And similar to previous years’ results, the top three most commonly reported objectives for using smart beta are for return enhancement (61%), risk reduction (56%), and improved diversification (39%).

Among the global asset owners surveyed this year, multi-factor combination smart beta strategies were used by 49%, rising significantly from 20% when the strategy was first highlighted in the 2015 survey. Furthermore, 87% of those who have implemented a smart beta strategy for the first time within the last two years are using a multi-factor combination. This dramatically illustrates a growing awareness of the diversification, downside protection, and return potential of combining factors – something we’ve also witnessed during our many discussions with clients. By contrast, fundamentally-weighted strategies have steadily decreased in use from 41% in 2014 to 19% in 2018.

Though still a relatively new entry into our annual survey, smart beta indexes that incorporate environmental, social & governance (ESG) considerations continue to rise in popularity. Nearly 40% of respondents anticipate applying ESG considerations to a smart beta index-based investment strategy in the next 18 months. Among those, 63% are motivated by societal good, a shift from last year’s top driver of avoiding long-term risk (now 54%). However, asset owners also reported performance (44%) as a top reason for consideration, up 13% since last year when ESG smart beta i awareness and usage was first measured.

Despite the strong growth in adoption these findings reveal, educational shortfalls still remain. The largest barrier keeping investors from making a smart beta allocation is determining the best strategy (or combination of strategies) for a portfolio. Almost half of those surveyed cited this as their top concern, underscoring the importance and continued need for further research, education, and product innovation to meet the needs of asset owners.

To learn more about the background and methodology or view this year’s full results, request a full copy of the Smart beta: 2018 global survey findings from asset owners.

 

---------------

© 2018 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”), (4) MTSNext Limited (“MTSNext”), (5) Mergent, Inc. (“Mergent”), (6) FTSE Fixed Income LLC (“FTSE FI”) and (7) The Yield Book Inc (“YB”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX, MTS Next Limited, Mergent, FTSE FI and YB. “FTSE®”, “Russell®”, “FTSE Russell®”, “MTS®”, “FTSE4Good®”, “ICB®”, “Mergent®”, “WorldBIG®”, “USBIG®”, “EuroBIG®”, “AusBIG®”, “The Yield Book®”,  and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, FTSE TMX, Mergent,  FTSE FI or YB. "TMX" is a registered trademark of TSX Inc.

All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of the FTSE Russell Products or the fitness or suitability of the FTSE Russell Products for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell Products is provided for information purposes only and is not a reliable indicator of future performance.

No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this communication or links to this communication or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing contained in this communication or accessible through FTSE Russell Products, including statistical data and industry reports, should be taken as constituting financial or investment advice or a financial promotion.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE TMX, MTSNext, Mergent, FTSE FI, YB and/or their respective licensors.

Blog Listing Page