Sunday, June 16, 2019

Russell survey on smart beta - A mainstream investment choice

More than 50% of the institutional investors polled in the new 2019 FTSE Russell smart beta global survey now have exposure to smart beta products. Smart beta is now a normal part of the normal investment choice set. The key reason for employing smart beta investment is not to provide another passive asset allocation choice but to serve as an alternative to active management. Smart beta, the investing in long-only risk premia, is serving as rules-based method of gaining specific risk exposures without the use of an active manager. 

Investors are not buying unbundled smart beta strategies, but focusing on portfolios of factors. There is a desire to have an investment product that balances between a few risk factors.  Investors still want help with the asset allocation process.

These smart beta allocations are not viewed as short-run allocation decisions but as part of strategic long-term allocations. This seems consistent with the movement to thinking about risk factors and not asset allocations. 

The overall satisfaction with smart beta is high with over 50% of survey responders saying they are very satisfied or satisfied. While there are still a strong percentage of users who want to see more performance information, the smart beta revolution has done a good job of delivering on their investment promises at a reasonable price. 

As comfort levels further increase, we expect there will be more desire to buy long/short risk premia products to gain the full advantage of risk premia investing and not just tilts to long-only exposures. The desire for long/short exposures will require the use of different investment choices like swaps to gain efficient exposures.  

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