Recent fund manager research has shown the smart beta investment strategy for exchange-traded funds (ETF) has become an increasingly popular choice among investors.
ETF specialist manager VanEck Australia performed the survey and shared the results with delegates at the Australian Shareholders’ Association Virtual Investment Forum held last month.
“Smart beta is the fastest-growing part of the broader ETF market, both in Australia and globally. Our survey [found] that more than half of financial professionals, including brokers, advisers and institutional buyers, are planning on increasing their allocation to smart beta over the next year,” VanEck Australia business development director Damon Gosen said.
Specifically, the study discovered 99 per cent of those who had invested in smart beta have been satisfied with the results. Meanwhile, 55 per cent of financial advisers have planned to increase their allocation to the ETF asset in the upcoming year.
“Most [respondents] think smart beta is going to become more prevalent in portfolios and strong performance was the number one motivation for using smart beta, seeing it as a replacement for active management,” Gosen said.
Further, he encouraged investors to uncover the underlying strategies that smart beta ETFs have implemented in order to ensure positive returns.
“There is a lot of research that suggests equal weighting should outperform over time,” he said.
“[That means] giving the same weighting or an equal weighting to every holding and … where we see that being most valuable is in very concentrated asset classes.”
He noted other strategies that are equally important for smart beta ETFs, including fundamental weighting for revenue streams.
“Capping is similar to equal weighting in the sense of it working well in asset classes where there’s a huge amount of concentration to maybe one or two particular holdings,” he said.''