Smart beta assets hit record high

Added 10th August 2016

Assets invested in smart beta ETFs/ETPs listed globally hit a record $429bn at the end of June, according to research and consultancy firm ETFGI.

Smart beta assets hit record high

The five year CAGR for the products is 31.3%, according to ETFGI.

Smart beta strategies passively follow indices but are weighted to take into account certain factors such as yield, momentum and minimum volatility. Such factor investing is often based on academic research and promises to systematically deliver alpha.

“Many smart beta products are combining factors because it’s hard for a private bank to decide which factor to buy,” Deborah Fuhr, managing partner of ETFGI, told FSA in an earlier interview. “Multi-factor products, over all market cycles, see more money going in rather than single factor.”

Smart beta ETFs/ETPs assets by region

 Domicile   Assets*
 US   $390.2bn 
 Europe   $26.7bn
 Japan  $832m

*to 30 June. Source: ETFGI

During the month of June alone, smart beta products globally had net inflows of $5.70bn. Volatility factors gathered the largest net inflows with $2.17bn, followed by dividend factor-based products with $1.7bn and value factor with $1.6bn.

Year-to-date (to 30 June), volatility factors also gathered the largest net inflows with $14.3bn.

Fuhr, in a statement, said the Brexit vote was one reason.

“Markets and investors around the world were engulfed in the chaos following what many saw as the unexpected result of the UK’s June 23rd vote. Volatility was up significantly during the month. The S&P 500 index was up just 0.3%.”

In terms of asset management firms, year-to-date, iShares smart beta ETF/ETP net inflows were the largest ($19bn), followed by Vanguard ($5.26bn) and Charles Schwab Investment Management ($2.15bn).

Although the big name asset managers are involved in smart beta products, the field is not dominated by them, Fuhr said.

“Blackrock, State Street and Vanguard hold 70% of global ETF assets. But the smart beta space is not owned by those firms and a lot of new issuers are coming to market. Many asset managers and quant teams are developing their own smart beta using quant techniques.”

Rayliant Global Advisors, for example, has said it intends to launch smart beta products in Asia after acquiring a small scale asset management firm in Hong Kong.

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