A report by Cogent Research on behalf of Invesco says about one-quarter of institutional decision-makers use smart beta exchange-traded funds (ETFs) that number is expected to rise.
The primary reason institutional professionals use them stems from their belief that these funds generally outperform the market. In addition, these ETFs provide a more efficient means for diversifying their portfolios and reducing overall portfolio volatility—a growing mandate among many institutional investors.
Overall, institutional use of ETFs in general is expected to increase as more institutional professionals become familiar with them. And the smart beta ETF category is poised for the greatest growth relative to all other ETF categories over the next three years.
Fifty-three percent of institutional decision-makers expect to increase their use of smart beta ETFs, while 48% project they’ll make more use of market cap-weighted ETFs.
The top five reasons among non-users to move to smart beta ETFs are to make tactical adjustments to asset allocation (42%), to access higher beta strategies (40%), to complete the portfolio (40%), to reduce portfolio volatility (39%) and to reduce expenses/fees (37%).
“Nobody would argue that smart beta ETFs have supplanted other categories of ETFs, and they probably won’t in the near future,” notes the report. “While growth is expected to continue for the smart beta ETF category, providers will need to take into account the primary drivers of adoption and address the potential concerns if they plan to grow their business moving forward.”
A version of this story originally appeared on our sister publication, Advisor.ca.
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