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Index IDEA: Canadian asset owner interest in smart beta on the rise

FTSE Russell recently asked 250 of the largest institutional investors across North America, Europe and Asia (14% of which were based in Canada) with more than $2 trillion in invested assets for their opinion on “smart beta” indexes and investment strategies based on them. For purposes of its annual survey, FTSE Russell defines a “smart beta” index as a market index which is not traditionally market cap-weighted, but rather built on other approaches such as alternative weighting, selecting for single factors or combining multiple investment factors.

When asked what types of smart beta indexes they are currently using, global survey respondents cited low volatility, value and multi-factor combination indexes as most popular. Still popular but further down the list were fundamental, momentum and high quality indexes.

Recent feedback from the largest Canadian investors supports the utility that smart beta indexes continue to bring to Canada asset owners. According to Rajiv Silgardo of BMO Global Asset Management, “In Canada, our equity markets and indices have limited breadth. Thus as a result smart beta strategies focused on lowering risk and/or providing higher yields have been very popular and fast growing for a long period of time.”

Jackie O’Flanagan, Head of Canada and Regional Director for FTSE Russell, adds that the smart beta index use in Canada has matured to the point where large numbers of investors now consider smart beta to be an important part of their toolkit. “A clear sign of maturing smart beta use is that many Canadian investors are now looking beyond single factor indexes to multi-factor combinations,” said O’Flanagan. “Yet while many asset owners have increased their understanding and implementation of smart beta, continuing innovations in other asset classes and the multi-factor arena underscore the need for more information and education."
 


Source: FTSE Russell smart beta survey- 2016 global survey findings from asset owners.

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, go to a special landing page on the FTSE Russell website.

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