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Institutional investors discover factor investing

The American consultancy firm found 77% of institutional investors they surveyed plan to increase their exposure to so-called alternative risk premia over the next two years.

Cerulli notes that preferences diverge wildly per country. “Investors in France, for example, are particularly interested in low-volatility strategies,” says Barbara Wall, managing director for Europe at Cerulli. This could be due to their “highly cautious” nature.

German investors also like low volatility strategies, as they are “even more cautious”, says Justina Deveikyte, associate director at Cerulli. “And they dedicate more time to research than their counterparts elsewhere in Europe,” she adds. “Most German investors see quant strategies as highly complex and difficult to understand. Brand is also important to them; German investors often prefer to give their money to well-known global quant managers than to local quant managers,” she adds.

Cerulli’s findings chime with earlier research by the likes of Natixis and ETF provider Wisdom Tree, which found appetite for smart beta investing is increasing across the board among institutional investors. 

Dutch frontrunners

The consultancy’s research didn’t cover the Netherlands, which is home to some of Europe’s largest institutional investors. Many Dutch pension funds have in recent years centred their investment strategies around smart beta investing. Some do that mainly through passive strategies, while others choose a more active approach.

“We believe a long-term exposure to value, low volatility, quality and small caps provides a factor premium, in addition to the equity risk premium,” Freddy Van Mulligen, head of manager selection at Achmea Investment Management in the country, told Expert Investor in a recent interview, a full version of which will be published in the May edition of the Expert Investor magazine

“This long-term focus also fits very well with the investment horizon of institutional investors.”

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