Majority of advisers turn to smart beta ETFs

The majority of financial advisers are currently using smart beta exchange traded funds (ETFs) in clients’ portfolios, with 80% of those surveyed by VanEck admitting they will either maintain or increase their allocations to this asset class.

At the same time, the survey confirmed a decline in active managers as active ETFs failed to gain traction with investors and over 63% of financial professionals have said they would be replacing active managers with smart beta strategies due to improved portfolio diversification and reduced costs.

The data showed that the usage of smart beta across financial advisers in Australia had jumped 7% since last year and has been steadily growing over the last three years.

Smart beta refers to investment strategies that have a targeted outcome, they track an index that goes beyond simple market capitalisation and typically do so for a fraction of the cost of active strategies

“This survey provides further evidence that active management is being disrupted. Smart beta ETFs are providing investors with targeted outcomes, full transparency, and low fees. Active managers can no longer afford to ignore the popularity or the features of smart beta ETFs,” Arian Neiron, VanEck’s Asia Pacific chief executive and managing director, said.

“If we consider active ETFs as a proxy for active management, net flows into active products have been negative over the past two years. Since 2015, the number of active ETFs has grown from just 6 to 90. Despite this growth in product offerings by active managers on the Australian exchange, their popularity has been dwarfed by the uptake of passive ETFs, which includes smart beta.”

According to the annual VanEck Australian Smart Beta Survey, which attracted a record 673 responses from financial advisers and brokers working in Australia, the popularity of smart beta in Australia was also part of a broader global trend, with professional investor taking up of smart beta or ‘factor’ based products steadily increasing.