Posted inInvestment

What’s the place of smart beta in a portfolio?

The fast growth of smart beta funds is testified by the fact that 65% of smart beta users surveyed have been invested in smart beta funds for a maximum of two years. These new users have diverted funds from both their active and passive holdings to their new smart beta investments in comparable numbers, illustrating their overall feeling that the latter complement both active and passive strategies (see chart below).

Interestingly, non-users of smart beta link these strategies more to passive investments. Six in 10 of them believe smart beta is just another passive strategy, albeit one charging considerably higher fees. It’s therefore understandable they stay clear of smart beta… One respondent to the research, a smart beta user, had a radically different opinion: “Active managers typically have some kind of smart beta bias in their investment style,” he said. “But with smart beta value strategies, you can really tilt your portfolio in the way you want it to be tilted.”

A smart satellite

Investors are equally divided about the question whether to use smart beta tactically or strategically. While investors in Germany favour a strategic implementation of smart beta funds, their Swiss counterparts prefer an opportunistic approach. In the other two countries surveyed, Italy and the UK, proponents of a tactical and strategic approach balance each other out.

 There is more consensus on the question whether smart beta should be regarded as a core or a satellite investment. The overall allocation of 9% to their portfolios suggests it is regarded by the majority as a satellite, and that’s right. In Germany, Switzerland and Italy, at least 70% of smart beta users consider it a satellite investment. The UK is the exception: proponents of the core and the satellite approach balance each other out here. 

Part of the Mark Allen Group.