Active strategies are expected to thrive in volatile times but research by VanEck has found more advisers are opting to use smart beta ones.
The annual VanEck Australian Smart Beta survey questioned 650 advisers and found two in three financial professionals had increased usage of exchange traded funds (ETFs) over the last 12 to 18 months, with reduced total portfolio costs being the main driver.
Over half said they were using them as a replacement for active management.
The proportion of net flows going into smart beta rose from 20.2% in August 2021 to 26.6% this August. Smart beta strategies now made up 15.2% of the total exchange traded products (ETPs), up from 8% in the previous year.
Arian Neiron, chief executive of VanEck Asia Pacific, said: “Half of those surveyed plan to increase their smart beta allocation over the next year; the expected increase in usage will drive further growth of the ETF market in Australia as it heads towards a market capitalisation of $150 billion by end of 2022, of which portion smart beta ETFs are likely to account for 18%.”
This was despite the fact that active strategies tended to be preferred in turbulent times for their ability to adjust portfolios to reflect market environments.
“Active fund managers have long said that in market environments such as the current one, where share prices are volatile and returns are expected to stay relatively low, an active approach is vital to best navigate the volatility and uncertainty. However, that’s not what we’re seeing.
“The recent SPIVA scorecard produced by S&P Dow Jones reinforces that. By way of example the 30 June 2022 SPIVA scorecard revealed 31.8% of Australian equity mid and small cap funds beat their benchmark indices in the six months ending 30 June, 2022.”
