Transparency of smart beta ETFs a concern
Smart beta exchange traded funds (ETF) still lack appropriate levels of transparency with a strong majority of professional users of the funds expressing concerns over the difficulty of assessing risks within the funds.
However, this concern has not dampened appetite for smart beta ETFs with use expected to increase according to a survey of public and private European asset managers conducted by European fund manager Amundi and EDHEC-Risk Institute.
The survey covered 222 investment decision makers at the chief executive, chief investment officer, asset allocation and portfolio management levels in institutional and private wealth managers in 27 European countries.
According to a report on the survey, which was released yesterday, 88 per cent of respondents stated that smart beta indices required full transparency on methodology and risk analytics.
The report stated transparency offered protection against conflicts of interests and would improve the ‘informational efficiency' of the indexing industry but was lagging within the smart beta ETF sector.
"While transparency is important for market indices, it is all the more so for smart beta indices. Unfortunately, these indices' low level of transparency, which is routinely justified by the use of proprietary models, makes the evaluation of risks difficult," the report stated.
However, it seems this has not put off investment managers with the report also stating that of those who use smart beta strategies 49 per cent use ETFs or ETF-like products to invest in smart beta. At the same time smart beta ETFs or ETF like products represented a third of the total amount invested in smart beta by survey respondents.
AUTHOR
Jason Spits
Recommended for you
Infrastructure assets are well-positioned to hedge against global uncertainty and can enhance the diversification of traditional portfolios with their evergreen characteristics, an investment chief believes.
Volatility in US markets means currency is becoming a critical decision factor in Australian investors’ ETF selection this year.
Clime Investment Management is overhauling the selection process for its APLs, with managing director Michael Baragwanath describing the threat of a product failure affecting clients as “pure nightmare fuel”.
Global X will expand its ETF range of exchange-traded funds next month with a low-cost Australian equity product as it chases ambitions of becoming a top issuer of ETFs in Australia.
