Institutional money managers are increasingly turning to exchange-traded funds (ETFs), citing liquidity, transparency and ease of implementation.
In particular, institutional investors have expressed a growing interest in smart beta ETFs, finds an Invesco PowerShares study, entitled The Evolution of Smart Beta ETFs.
Smart beta indices employ alternative security selection and weighting criteria with the goal of outperforming a market-capitalization-weighted benchmark or reducing risk.
Smart beta ETFs captured more than 17% of total U.S. ETF equity inflows in 2014, despite representing only 11% of institutional ETF assets. Thirty-six percent of institutional investors used smart beta ETFs, up from 24% in 2013, while the mean allocation rose to 13% from 7%.
Performance was the primary motivator for smart beta ETF usage for 22% of the survey’s 253 respondents, followed by reducing volatility (19%) and seeking exposure to specific assets (15%).
This story originally appeared on our sister site, Advisor.ca.