Institutional money managers have increasingly looking to exchange-traded funds to take advantage of their liquidity, transparency and ease of implementation – and one recent report shows that trend is only the beginning.
Research conducted by market Strategies International, sponsored by Invesco PowerShares, an affiliate of PowerShares Canada, shows that the use of smart beta ETFs are becoming more popular among institutional decision makers.
According to Jason MacKay, head of global investment strategies at Invesco Canada, low-volatility fundamental-weighted and high-dividend ETFs are poised to see the greatest growth over the next three years, as more than two-third of respondents indicated they are likely to use one of these strategies.
“Invesco PowerShares has a long track record of bringing smart beta strategies to market in the U.S., and Invesco Canada extends the track record with a diverse ETF lineup in Canada,” says MacKay. “We are committed to partnering advisors with next-generation index creators to deliver investment strategies that go beyond market-capitalization weighting to better manage risk and enhance returns for investors.”
According to the report, The Evolution of Smart Beta ETFs, smart beta ETFs captured over 17 per cent of total U.S. ETF equity inflows in 2014, despite representing only 11 per cent of institutional ETF assets. Thirty-six per cent of institutional investors used smart beta ETFs in their portfolios, up from 24 per cent in 2013, while the mean allocation rose to 13 per cent from 7 per cent.
Performance was the primary motivator for smart beta ETF usage for 22 per cent of respondents, followed by reducing volatility (19 per cent) and seeking exposure to specific assets (15 per cent).
The survey, conducted between October 9 and December 2 of last year, was administered to 253 institutional decision makers, including pensions, endowments/foundations, non-profit institutions and mutual fund providers, as well as registered investment advisors who manage institutional business.