Smart beta boom

6 March 2017

Smart beta exchange traded funds (ETFs) are set to become the fastest growing ETF market in the world, according to Van Eck’s Global Chief Operating Officer, Adam Phillips.

"When I think of smart beta, I think of differentiated approaches to traditional market capitalisation offerings," Philips said.

"Some of tilts and some of the strategies that come with smart beta are very interesting to sophisticated financial advisers that are putting together portfolios [and] looking for different approaches and weights."

According to Philips, advisers and investors are increasingly utilising smart beta ETFs within their portfolios to seek protection, outperformance, or to deliver specific outcomes.

In Australia, one tenth of exchange traded products (ETPs), or $25.6 billion, is invested into smart beta; in the US, the products capture nearly a quarter of the market.

According to Van Eck, however, those figures are likely to push higher in 2017.

"Low volatility and minimum volatility was a big winner for the first part of 2016," Philips said. "It was something that investors were trying to achieve, which was some sort of view of risk mitigation within their portfolio. That’s an example of how smart beta offerings can be there to have you make overweights or underweights."

While minimum volatility and equal weight ETFs were some of the most popular smart beta ETFs in 2016, the market has shifted since the US election, with investors increasing their confidence.

"Bonds have sold off a little bit and equities have garnered a lot of money since the US election," Philips said.

"We’ve seen a fair amount of money of late go into US equities, certain sectors, around the infrastructure theme, healthcare, US Financials.

"As a house … we feel good about equities," Philips said.

"[We’re] still long-term bullish on gold, although we [wouldn’t] be surprised by short-term volatility."

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