Last updated: 09:36 / Friday, 19 February 2016
Factoring in Volatility

Choppy Markets Spur Interest in Multi-Factor Smart Beta Strategies

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Choppy Markets Spur Interest in Multi-Factor Smart Beta Strategies
  • Market volatility will continue to fuel the growing popularity of multi-factor smart beta strategies in 2016
  • “Over the past year as market uncertainty has reigned, multi-factor smart beta strategies have garnered greater interest,” says Justina Deveikyte, a senior analyst at Cerulli
  • Big data platforms and improved off-the-shelf analytics that better understand how different factors work is also growing the market

While market volatility will continue to fuel the growing popularity of multi-factor smart beta strategies in 2016, there will be greater focus on diversification than trying to predict which factor will dominate, according to the latest issue of The Cerulli Edge - Europe Edition.

“For delivering alpha, multi-factor strategies that tip-toe the line of active investing will gain favor,” says Barbara Wall, Europe managing director at Cerulli Associates, a global analytics firm.

In a Cerulli survey conducted in mid-2015, when asset managers were asked which smart beta products would see the strongest institutional sales over the next 12-24 months, 50% of UK managers said multi-factor, with 30% of Nordic managers answering the same.

"Over the past year as market uncertainty has reigned, multi-factor smart beta strategies have garnered greater interest. We expect total assets under management (AUM) to continue to increase not only in Europe but in the US and Asia as well," says Justina Deveikyte, a senior analyst at Cerulli.

Big data platforms and improved off-the-shelf analytics that better understand how different factors work is also growing the market by broadening the investor base beyond sophisticated institutional clients, says Cerulli.

It estimates that total AUM for smart beta portfolios in Europe has grown from EUR 9.5 billion (US$ 10.6 billion) in 2011 to EUR 32 billion by the close of 2015. Return-oriented AUM increased from EUR 5.7 billion to EUR 23.5 billion over the same period.

"Investors sitting in more cap-weighted passive implementations or classic active management strategies will be looking at the multi-factor smart beta strategies as suitable alternatives because they are cost effective, transparent, and are more likely to live up to potential," says Deveikyte.

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