State Street survey signals rapid growth in alternative to index-based investment
Advanced beta ‒ or ‘smart beta’ ‒ investment strategies are gaining ground and will soon be used by most institutional investors, according to a study by State Street Global Advisors.
About 42 percent of institutional investors already use advanced beta strategies, which shift away from traditional tactics centered on market capitalization-based indices, State Street says.
Almost another quarter of them plan to adopt advanced beta strategies sometime in the next three years.
‘The recent spike in equity market volatility and a reduced appetite for active strategies may encourage further adoption of advanced beta based on its track record of improving risk-adjusted returns,’ says Lynn Blake, CIO of global equity beta solutions at State Street Global Advisors, in a statement.
‘Advanced beta strategies play an important role in helping investors to construct holistic investment strategies while keeping risk and costs in check. Our study finds more than half of institutional investors in North America and Europe will be using advanced beta strategies in the near future.’
The study, which covers 300 institutional investors from Europe and North America, also finds that 70 percent of institutional investors report a high level of awareness of advanced beta strategies but only 40 percent are confident they could use them effectively. European investors are more likely to use the strategies, with a quarter already devoting 20 percent or more of their portfolios to advanced beta. Only 4 percent of North American investors do the same.
Many of the institutional investors included in the survey say they view advanced beta as a replacement for active investment, even though it is usually marketed as a replacement for capitalization-weighted indexing. Investors are three times more likely to fund an advanced beta investment from active investment funds than from passive, the survey shows.
