Advisers replace active management with smart beta ETFs
Financial professionals have boosted their use of exchange traded funds (ETFs) to replace actively managed funds with smart beta strategies and to reduce overall portfolio costs, according to Vaneck.
VanEck’s sixth smart beta survey, that gathered responses from 547 financial advisers in Australia, found respondents felt an increased use of ETFs had a positive impact on their business through greater control of portfolio outcomes, increased transparency and improved performance.
The poll revealed 91% of advisers used ETFs in client portfolios, up from 87% in 2020.
Of all respondents that used ETFs, 56% use smart beta ETFs as a substitute or replacement for active management while 55% of financial professionals plan to increase their smart beta allocation in the next 12 months.
Smart beta investment strategies track an index that differs from the traditional market capitalisation approach of selecting shares, bonds or other assets.
Arian Neiron, VanEck's chief executive and managing director, Asia Pacific, said: “Not surprisingly, strong performance is the number one motivation for advisers using smart beta strategies, with improved portfolio diversification, reduced volatility and improved risk-adjusted returns also key reasons for using smart beta ETFs.
The entrenched underperformance of actively managed funds, which typically charge much higher fees, is also facilitating the growth of the ETF market, Neiron said.
“We also found that 75% of respondents think smart beta strategies are going to become more prevalent in portfolios; the reason for that could be that advisers are happy with their performance; with 99% of smart beta users satisfied with their strategy,” said Neiron.
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