Active asset managers need to be prepared as smart beta products enjoy dramatic rise
It is one of the hottest topics in the financial world… and if you’re not savvy, it might just take a chunk out of your business.
Smart beta ETFs are being tipped as the next big thing, even as more traditional ETFs dominate the bulk of investment flows. Interest in them is on the rise – in fact, during 2015, the term with the highest number of searches on Investopedia, the finance version of Wikipedia, was “smart beta”.
As it stands, the smart beta industry is comparatively small and wide open: but they are making up the ground gradually. Take a look at our neighbours below the border, for example. There the ETF industry is worth around $1.7 trillion – and smart beta now makes up more than a fifth of that total, representing a rise from 14 per cent five years ago. Currently, there are just 11 smart beta ETFs that boast assets in excess of $10 billion.
So how can you be successful with smart beta ETFs? Tim Huver, of Vanguard Investments Canada, believes that patience is the key.
“Smart beta is not a replacement for market cap weighted beta or a ‘better mousetrap’, but a rules-based active approach to investment,” he said.
“With that in mind, successful implementation of active strategies involves being able to control costs, selecting a strong investment manager, and being patient.”
As it stands now, the smart beta environment feels like a war of attrition with many traditional asset managers swooping for small, niche players in the market. Big names are battling with well-regarded smaller firms and in some cases buying them out – for example, in 2015, Oppenheimer purchased VTL Associates, while Goldman Sachs bought out Westpeak Global Advisors.
Overall, it seems smart beta ETFs still have to prove their worth. However, if they are able to show a superior level of performance in the long-term then chances are that money will quickly gravitate towards these products. Then, we can expect things to really heat up in the sector.
Smart beta ETFs are being tipped as the next big thing, even as more traditional ETFs dominate the bulk of investment flows. Interest in them is on the rise – in fact, during 2015, the term with the highest number of searches on Investopedia, the finance version of Wikipedia, was “smart beta”.
As it stands, the smart beta industry is comparatively small and wide open: but they are making up the ground gradually. Take a look at our neighbours below the border, for example. There the ETF industry is worth around $1.7 trillion – and smart beta now makes up more than a fifth of that total, representing a rise from 14 per cent five years ago. Currently, there are just 11 smart beta ETFs that boast assets in excess of $10 billion.
So how can you be successful with smart beta ETFs? Tim Huver, of Vanguard Investments Canada, believes that patience is the key.
“Smart beta is not a replacement for market cap weighted beta or a ‘better mousetrap’, but a rules-based active approach to investment,” he said.
“With that in mind, successful implementation of active strategies involves being able to control costs, selecting a strong investment manager, and being patient.”
As it stands now, the smart beta environment feels like a war of attrition with many traditional asset managers swooping for small, niche players in the market. Big names are battling with well-regarded smaller firms and in some cases buying them out – for example, in 2015, Oppenheimer purchased VTL Associates, while Goldman Sachs bought out Westpeak Global Advisors.
Overall, it seems smart beta ETFs still have to prove their worth. However, if they are able to show a superior level of performance in the long-term then chances are that money will quickly gravitate towards these products. Then, we can expect things to really heat up in the sector.
