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cerulli forecasts smart beta surge

European exchange traded fund providers are bullish on the demand outlook for “smart beta”, and are likely to increase the pace of product launches in this area, according to Cerulli Associates


The latest issue of The Cerulli Edge – European Monthly Product Trends notes that, while few retail investors are directly using non-traditional indices, institutional investors including multi-manager and single-manager funds are increasingly allocating to such strategies.

As a result, “global smart beta big guns” iShares, State Street and Vanguard have been joined in their quest for European assets by US peers PowerShares and Russell Investments. Local players such as Amundi, Unigestion, Swisscanto and Natixis subsidiary Ossiam are also competing.

Largest European smart beta ETFs (June ’13)
 Fund  AUM ($m)
SPDR S&P US Div Aristocrats $1,195.0
iShares FTSE UK Div Plus $908.6
iShares Asia Pacific Div $483.2
iShares DivDAX (DE) $465.5
iShares EURO STOXX Select Div $446.0

“Cerulli predicts the number of smart beta ETFs in Europe will surge as investors become more comfortable with the concept,” wrote Barbara Wall, a director at Cerulli.

“Some strategies will fail if investors feel liquidity – effectively their emergency exit – is insufficient. Other strategies may be too left-field. But that will not stop index producers tinkering and brave promoters from launching more quasi-active ETFs.”

A paper published by Towers Watson – Understanding smart beta – similarly forecasts that non-market cap-weighted indices will remain popular among institutional buyers. Clients of Towers Watson collectively held smart beta assets of $20bn (€15bn) in 2012, about half of which was in bonds.

Click here to read analysis of the smart beta sector, first published in the March 2013 issue of Expert Investor Europe magazine.

A copy of Understanding smart beta can be downloaded from the Towers Watson website, here.