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‘Multi-strategy smart beta’ set for super-fast growth

Low volatility and value are the most commonly used smart beta factor strategies among European investors. But decorrelation approaches which combine several factors with the aim of delivering more stable returns have the highest growth potential, according to a recent survey by the EDHEC Risk institute.


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Six in 10 investors questioned by the Paris-based institute currently use low-vol and value strategies, compared to 23% who have exposure to smart beta strategies with a decorrelation/diversification approach. However, the number of users of the latter is set to grow fast, as another 20% of smart beta users are currently examining the possibility to invest in a multi-factor decorrelation strategy (see chart below).

 Source: EDHEC    

Complement rather than substitute

Over the past years, smart beta has been quickly gaining ground in Europe, though its popularity varies greatly across the continent. Net inflows into the asset class amounted to €2.2bn in the first four months of the year, according to Lyxor, the French ETF provider, though they slowed significantly in the past three months to only €179m in June.

Despite taking away market share from long-only active managers, investors are not (yet) substituting their active equity holdings, or even their conventional passive ones, with smart beta ETFs, according to the EDHEC survey, instead seeing it as a separate allocation within their portfolios. At the moment they mainly use smart beta (labelled ‘alternative equity beta’ by EDHEC) as a complement to conventional ETFs and active equity funds.  

  Source: EDHEC