Institutional investors use smart beta indexes to reduce risk and enhance returns, finds a Russell Investments survey.
In Canada, 30% of plans are currently evaluating smart beta strategies, compared to 11% of non-Canadian respondents.
“Indicative of the current pension landscape in Canada, survey findings indicate that Canadian investors are most interested in smart beta indexes for volatility control and risk reduction,” says Greg Nott, chief investment officer for Russell Investments Canada Ltd.
Read: Smart beta basics
Across North America and Europe, institutional investor use of smart beta indexes and smart beta index-based investment strategies is diverse, from use as market benchmarks to tools to controlling unwanted exposures or for emphasizing certain investment factors in global multi-asset portfolios.
- 32% of respondents worldwide have smart beta allocations. Of these, 53% expect to increase their allocation and 5% plan to reduce it in the next 18 months.
- Smart beta indexes being used primarily to pursue investment outcomes, with Canadian respondents gravitating toward low-volatility strategies
- The greatest unmet need cited by survey respondents is for smart beta indexes that help control factor exposures.
- 15% cited cost savings, ranking it at the bottom of the list of motivating factors.
Read: Understanding smart beta
Canadian respondents who are currently using smart beta indexes are using low-volatility strategies, versus less than half (48%) of non-Canadian respondents using these strategies. And 86% of those Canadian investors surveyed who are evaluating smart beta indexes are evaluating low-volatility strategies, compared to 64% outside Canada.
Among Canadian investors surveyed, risk reduction was cited 86% of the time as an objective leading to evaluation of smart beta strategies, while return enhancement was cited 43% of the time. This compares to 59% for risk reduction and 65% for return enhancement among non-Canadian respondents.