Smart beta to replace actively managed funds, survey says
The majority of financial professionals (68 per cent) has shifted to smart beta strategies from actively managed funds, according to VanEck’s annual smart beta survey.
The key motivations behind incorporating smart beta strategies was to achieve outperformance (64 per cent), better risk-adjusted returns (55 per cent), and to reduce volatility (50 per cent) and costs (46 per cent).
The study found that investors strongly believed that smart beta strategies would outperform (53 per cent) or perform in line (53 per cent) with active strategies.
At the same time, no respondents believed smart beta strategies would significantly underperform active funds.
According to VanEck, the most popular smart beta strategies were:
- Equal or alternative weighted strategies (68 per cent)
- Single factor quality strategies (48 per cent)
- Multi-factor combinations (33 per cent)
- Dividend, income or yield-weighted strategies (26 per cent)
The study showed that most financial professionals were turning to smart beta to access Australian and international equities, followed by Australian fixed income.
VanEck’s managing director and head of Asia Pacific, Arian Neiron, said that smart beta was giving active management a run for its money.
“For the first time since the survey launched in 2016, the majority of respondents are using smart beta strategies in their portfolios and they are using them as a replacement for active management strategies,” he said.
“Investors are now realising that active funds often lag their benchmark, so they are shifting to smart beta strategies as more cost effective, transparent and effective ways to achieve their investment and performance objectives.”
The study also found the awareness of smart beta strategies had significantly grown among investors over the last few years.
“It’s not surprising that awareness of smart beta investing has increased, particularly as the number of smart beta ETFs on the ASX has increased over the past two years. Now, one in three ETFs listed on the ASX are smart beta strategies,” Neiron added.
“Smart beta ETFs are really at the forefront of smart beta investing.”
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