Scientific Beta

The EDHEC European ETF and Smart Beta Survey 2016 gathered information from 211 European investment professionals concerning their practices, perceptions, and future plans. Analysis of responses to the survey allowed light to be shed on several important questions regarding investor perceptions on ETFs and smart beta strategies. In particular, fresh insight was gained into the drivers of product adoption by investors and into the challenges investors are faced with when making decisions on implementing passive investing and smart beta strategies.

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The 10th EDHEC European ETF and Smart Beta Survey, a comprehensive survey of 211 European ETF and smart beta investors, conducted as part of the Amundi research chair at EDHEC-Risk Institute on "ETF, Indexing and Smart Beta Investment Strategies", provides a detailed account of European investor perceptions and practices in the domain of ETFs and smart beta strategies.

Key findings of the latest survey in the area of smart beta include the following:

KEY OBJECTIVES DRIVING THE USE OF SMART BETA STRATEGIES

The most important motivation for adopting smart beta strategies is to improve performance and manage risk.
In terms of the actual product wrapper, respondents favour passive funds replicating smart beta indices (64%) but also use active solutions, albeit to a lesser extent (44%).
Replication of smart beta strategies are chosen for the following reasons: costs, transparency of methodology and availability of information, which represent the main reasons why passive strategies are normally selected. Discretionary strategies are preferred for the reactivity and dynamism they allow, with 68% of respondents indicating the ease to change portfolio allocation as the principal advantage.
The pieces of information respondents consider important for assessing smart beta products are liquidity and capacity, index construction methodology and transaction costs. There is an important gap between required information and ease of access to this information. For example, data-mining risk and liquidity and capacity, which are crucial for respondents, are among the most difficult pieces of information to obtain.

FUTURE DEVELOPMENTS ON ETF & SMART BETA PRODUCTS

63% of investors actually plan to increase their use of ETFs in the future despite the already high maturity of this market and the current adoption rates (compared with 55% in 2014 and 57% in 2015).
Lowering investment cost is the primary driver behind investors’ future adoption of ETFs for 87% of respondents.
Top concerns for the respondents (54%) are the developments of ETFs in at least one of the following three categories: ETFs based on smart beta indices, on multi-factor indices, and on single-factor indices. The development of ETFs in the equity asset class is also one of the top concerns of respondents.
The vast majority of respondents (94%) plan to increase their investment in smart beta products over the next three years.
When asked about the smart beta solutions they think required further product development from providers, results indicated the areas of fixed-income and alternative classes. Respondents would also like more customised solutions to be developed. The development of new products corresponding to these demands may lead to an even wider adoption of smart beta solutions.