Smart Beta ETFs Are Growing At A Staggering Pace
Advisors and investors are hearing plenty about the growth of smart or strategic beta exchange-traded funds. New data confirm these ETFs, which toe the line between active and passive management, are growing at a blistering pace.
According to FTSE Russell’s first U.S. retail financial advisor market survey “Smart Beta: 2015 survey findings from U.S. financial advisors,” 68 percent of financial advisors polled are using smart beta ETFs and 70 percent are using multiple strategic beta approaches.
Strategic, Smart Beta ETFs
Exponential growth for strategic beta ETFs has continued in 2015 despite outflows from some dividend ETFs. Dividend ETFs had previously been the primary drivers of smart beta growth, but that has changed this year. Advisors and investors have pulled assets from some marquee dividend ETFs due to speculation the Federal Reserve is close to raising interest rates for the first time in nine years.
“Smart Beta equity ETFs/ETPs listed globally gathered US$ 3.0 billion in new assets in October and US$ 53.7 billion in the first 10 months of 2015. There were 764 smart beta equity ETFs/ETPs, with 1,336 listings, assets of US$399 billion, from 106 providers listed on 31 exchanges in 27 countries, according to ETFGI’s new report the Global Smart Beta ETF and ETP Insights report for October 2015,” according to ETFGI, a London-based ETF research firm.
Excluding two currency hedged ETFs – WisdomTree Inter Hedged Eq Fund (NYSE: HEDJ) and the DBX ETF Trust (NYSE: DBEF) – the rest of this year's top asset-gathering equity ETFs are cap-weighted funds. However, there are plenty of examples of factor-based and smart beta ETFs packing on the assets.
Factor-Based, Smart Beta ETFs
That group includes the WisdomTree U.S. Quality Dividend Growth Fund (WisdomTree Trust (NASDAQ: DGRW)), iShares MSCI USA Momentum Factor ETF (iShares Trust (NYSE: MTUM)) and new funds such as the PowerShares DWA Tactical Sector Rotation Portfolio (NASDAQ: DWTR). DWTR has needed less than two months of trading to become an $84 million ETF.
“Products which are categorised as smart beta based only on the fact that the index uses an alternative weighting methodology have $22.7 billion assets across 84 products, while those utilising volatility screens such as filtering for securities with low volatility have 63 products and $26.4 billion assets. There were also 28 products based on momentum strategies with $10.6 billion assets,” according to ETFGI.
WisdomTree Investments, Inc. (NASDAQ: WETF) is the top asset gatherer among smart issuers year-to-date, followed by iShares, the world's largest issuer of ETFs.
The author owns shares of DGRW.
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