If you’re not a smart beta whiz, you’re not alone.
An FTSE Russell advisor survey finds that only 35% of advisors (in Canada, the U.K. and the U.S.) say they’re “very familiar” with smart beta strategies.
For Canadian and U.S. advisors, not knowing enough about smart beta strategies is the main reason cited for not using them (31% and 47%, respectively).
In contrast, U.K. advisors who don’t use smart beta cite, among other things, the impossibility of predicting whether the strategies will outperform conventional funds (35%) and smart beta’s insufficient track record (32%).
Smart beta outlook
Despite these numbers, more than half of advisors surveyed in Canada and the U.K. expect to increase their use of smart beta, and 40% of U.S. respondents expect to do so.
Advisors in all three countries cited improved diversification as their first or second reason for implementing smart beta. Yield or income was the second most popular reason cited by advisors in Canada and the U.K. (30% and 25%, respectively). Inflation protection ranked third in Canada but only number 15 and 14 for the U.K. and U.S., respectively.
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Smart beta implementation is evolving, finds the survey.
In Canada and the U.K., for example, 80% of responding advisors view smart beta as best used alongside active strategies. In the U.S., 60% of responding advisors said smart beta is best alongside passive strategies.
Yield and multi-factor strategies rank among the most popular strategies for Canadian advisors. U.K. advisors were equally spread among strategies. U.S. advisors tend to prefer single-factor strategies, such as value, quality and volatility; and alternatively-weighted strategies, such as equal weight and dividend yield.
Most advisors use smart beta either purely strategically or as a combination of strategy and tactics. Only 21% of Canadian, 27% of U.K. and 30% of U.S. advisors use smart beta purely as a tactical tool.
Mutual funds and separately managed accounts are the dominant vehicles for smart beta in Canada and the U.K. Most U.S. advisors prefer ETFs for smart beta exposure.
Read the full survey.
About the survey: The research was conducted from September to October 2017 among 256 financial advisors (81 in Canada, 83 in the U.K. and 92 in the U.S.). In Canada, respondents were divided between full-service brokerages (43%), independent financial advisors (33%) and career exclusive financial advisors (14%). More than half of Canadian respondents were age 30-39. All respondents had a minimum of three years’ experience and $25 million in assets under management.