Institutional investors turning to smart beta ETFs

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.

Read: How smart beta can help with de-risking

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%).

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