For its third annual global institutional smart beta survey, global index and data provider FTSE Russell recently asked 250 of the largest institutional investors across North America, Europe and Asia with invested assets totalling over $2 trillion for their opinion on “smart beta” indexes. Market participants globally, including Europe, are gravitating toward low volatility indexes. When asked what types of smart beta indexes they are using, FTSE Russell survey respondents cited low volatility as the most preferred at 46%, followed by value (41%) and multi-factor combination indexes (37%).
One example of a low volatility smart beta index is the FTSE UK High Dividend Low Volatility Index, introduced in April and underlying the Powershares FTSE UK High Dividend Low Volatility UCITS ETF. It is designed to represent the performance of a subset of high dividend and low volatility stocks from the FTSE 350 ex Investment Trusts Index. Returns and relative volatility, based on historical back tested data, of the FTSE UK High Dividend Low Volatility Index compared with the FTSE 350 ex Investment Trusts Index for one, three and five years as of 31 May 2016:
Source: FTSE Russell data as of May 31, 2016. Past performance is no guarantee of future results. Returns shown may reflect hypothetical historical performance. Please see the disclaimer for important legal disclosures.
Peter Gunthorp, Managing Director of European research, FTSE Russell:
“Survey results this year reinforce what we are seeing among our clients. They are using smart beta indexes to assist them in pursuing a wide range of objectives, notably return enhancement, risk reduction and improved diversification. And our most recent results underscore the popularity of low volatility index approaches for market participants.”
Bryon Lake, Head of Invesco Powershares EMEA:
“Our new ETFs based on the FTSE High Dividend Low Volatility Index Series complement our existing range of high dividend low volatility ETFs and help investors looking for yield while operating in an uncertain equity environment. In recent years, we have observed our clients gravitating toward low volatility-oriented indexes and investment products based on them.”
Over 90% of FTSE Russell smart beta survey respondents have either direct responsibility for selecting equity investments or play roles in teams that perform this function within corporations or private businesses (23%), government organizations (24%), unions or industry-wide pension schemes (18%), non-profit organizations or universities (14%). 63% of survey respondents manage defined benefit plan assets, 45% managed defined contribution plan assets and 14% manage endowment or foundation assets. The breakdown in assets under management for survey respondents was 20% for asset owners with less than $1 billion, 46% between $1 billion and $10 billion and 34% with more than $10 billion in assets under management. Total assets under management for survey respondents this year is estimated at over $2 trillion.
For a deeper dive into key findings from the third annual FTSE Russell global institutional smart beta survey, click here.