Smart beta ETF usage on the rise among advisers
Financial advisers are demonstrating interest in smart beta ETFs, with the number of available funds rising to 71 this year.
Smart beta is a type of investment that combines the benefits of passively managed funds, such as lower costs, with the advantage of selecting investments based on certain formula-based rules, adding an active element. However, they differ from actively managed funds in the sense there is little human element.
VanEck business development manager, Angus Fowler, said on a webinar that the investment’s appeal lies in the fact that smart beta products combine the strength of both active and passive ETFs by considering additional factors such as low volatility or ESG screens in their investment selection.
The types of smart beta ETFs on offer include equal weighting, factor based, capping to ensure a small number of holdings don’t dominate a portfolio or are fundamentally weighted.
The number of smart beta ETFs available in Australia has risen from 27 in 2018 to 71 now, with over 1,000 available worldwide. One in every $4 that are invested in ETFs go into smart beta products, it said.
"We can see this is a growing trend in Australia but also globally," Fowler said.
The annual Smart Beta Survey by the ETF provider of 950 financial advisers, now in its ninth year, found 47 per cent of advisers are already using smart beta ETFs, and 21 per cent said they are currently evaluating them for potential usage.
Only 4 per cent of advisers said they already evaluated them and opted against their usage in portfolios.
Over half said they use them as a replacement for active management, and 47 per cent of advisers said they use them as a replacement for market capitalisation passive management. Some 65 per cent said they use them for international equities and 80 per cent for Australian equities.
However, the volume using them for ESG has fallen from a peak of 38 per cent in 2021 to 18 per cent, which the firm posited is due to greenwashing fears which have come to the fore in recent years.
“Diversification and strong performance are the major motivating factors for financial professionals when selecting smart beta strategies to use in portfolio construction. It seems investors and their advisers have realised that many actively managed funds underperform their benchmarks while continuing to charge higher fees. Savvy investors are shifting to smart beta to seek potential targeted performance outcomes, for lower fees and with full transparency,” it said in the survey.
Looking at future usage and performance, 56 per cent said they expect smart beta ETFs will marginally outperform compared to active strategies, and 67 per cent said they expect they will become more prevalent in portfolios.
AUTHOR
Laura Dew
Recommended for you
Financial advisers nervous about the liquidity of private markets funds for their retail clients are the target of fund managers launching semi-liquid products which offer greater flexibility and redemptions.
Former Pendal head of multi-asset Michael Blayney has been appointed as a member of the investment committee at specialist managed accounts provider Evidentia Group.
Australian Ethical has seen its funds under management surpass $13 billion in the latest quarter, thanks to retail and wholesale net flows of $173 million but a transition project by Mercer affected superannuation flows.
A salary guide has unpacked the salaries earned in various asset classes, with managing directors in one space earning north of $500,000.
