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Asset owner adoption of smart beta growing and broadening according to new FTSE Russell global survey


– Over 70% of asset owners with smart beta allocation now combining strategies
– ETFs most preferred vehicle for tactical smart beta strategies
– European asset owners continue to lead North America on adoption of smart beta

FTSE Russell today confirmed that smart beta index adoption among institutional investors is growing and becoming more broad-based, according to its new global institutional market survey. The FTSE Russell Smart Beta: 2015 Global Survey Findings from Asset Owners survey confirms a significantly increased interest in, and adoption of, multiple smart beta indexes among institutional asset owners around the world. The results highlight the importance of ongoing education and information surrounding the myriad of smart beta index methodologies available in the market today and how these approaches can work in combination.

The 2015 results reveal a significant increase in smart beta allocation in a relatively short period of time. In 2014, 38% of the survey respondents with an allocation to smart beta index strategies had allocated 10% or more of their organization’s equity portfolio to smart beta. In 2015, more than half (55%) of survey respondents are allocating more than 10% to smart beta strategies.

In addition, the number of asset owners using multiple smart beta strategies has grown. In 2014, 59% of the asset owners responding to the survey were using more than one strategy; in 2015, 71% are using more than one strategy, and 22% of those respondents are using four or more strategies. These differences highlight a growing allocation to smart beta strategies and the survey also reveals movement toward combining multiple factor and strategy indexes.

Rolf Agather, MD of North America research for FTSE Russell said:
“Smart beta indexes have given asset owners and their consultants more choice and greater flexibility in the tools available for constructing portfolios with an outcome-oriented focus. But increases in choice and flexibility mean that investors require more information as they work to make their decisions. Institutional asset owners are increasingly using more smart beta indexes and in a variety of new ways. This is outstanding for the industry but reinforces the need for further education, information and advice.”

The second annual survey, conducted in January and February of this year, included 214 asset owners predominantly from North America (61%) and Europe (26%). The research team at FTSE Russell, a pioneer in smart beta through predecessor businesses FTSE Group and Russell Indexes, engaged a mix of organizations including corporations, government entities, union or industry-wide pension schemes and non-profits to reach these findings. Total AUM of the survey participants is estimated to be over $2 trillion.

Other Key Findings:

Adoption continues to grow globally

  • European asset owners with $10B or more in AUM lead the adoption of smart beta indexes
  • In Europe, 79% of asset owners have evaluated smart beta indexes, and only 2% did not anticipate evaluating them in the next 18 months – while in North America, 61% of asset owners have evaluated smart beta, and just 23% did not expect to evaluate it in the next 18 months
  • Among those asset owners most likely to evaluate smart beta for the first time over the next 18 months are those in North America with between $1B and $10B in AUM

Implementation of smart beta strategies growing more sophisticated

  • On average, asset owners globally are evaluating four different smart beta index strategies, and more than 70% are using a combination
  • Low Volatility and Value are the most-used indexes as part of a smart beta combination
  • The majority (71%) of asset owners anticipate holding smart beta indexes for five years or longer to achieve their investment objectives and a third of asset owners are using or evaluating smart beta for tactical applications
  • For strategic allocations of smart beta, ETFs are in demand among respondents with less than $1B in AUM, and managing assets internally is of interest to those with more than $10B in AUM
  • For implementation of smart beta, ETFs are preferred by nearly half (43%) of respondents globally

Asset owners rely on a host of providers for education and advice

  • In North America, asset owners are looking most to external asset managers, journal publications and consultants for smart beta education and advice. In Europe, top smart beta sources for asset owners include industry events and symposiums, external asset managers and journal publications
  • Across global markets, external asset managers are initiating the evaluation of smart beta strategies; the evaluation of smart beta is also being initiated by the review of academic research and information from index providers
  • The internal investment manager and CIO are more involved in the evaluation of smart beta strategies and, in most cases, the CIO is the primary decision maker
  • The responsibility for monitoring and adjusting smart beta allocations varies, depending on a respondent’s AUM, resting either with the consultant, the internal investment manager or the CIO

About The Survey
Almost 90% of the respondents either have direct responsibility for selecting equity investments or play roles in teams that perform this function. The sample crosses a wide mix of organization types – corporation or private business (23%), government organization (22%), non-profit or university (14%), union or industry-wide pension scheme (13%) – and the rest is a mix of health-care organizations, insurance companies, family offices and sovereign wealth funds.

Sixty-five percent of survey respondents manage defined benefit plan assets, 38% manage defined contribution plan assets and 17% manage endowment or foundation assets. Respondents also include asset owners with insurance general accounts, sovereign wealth funds and other types of institutional entities. By AUM, the respondents were almost evenly distributed across the tiers evaluated; 29% under $1B, 33% between $1B and $10B, and 38% $10B or more.

A full report can be found here: 2015 FTSE Russell Smart Beta Survey Report

- Ends –

For further information:

Press Officers
Harry Stein, +44 (0)20 7797 1222
Mark Benhard or Tim Benedict, +1 212 314 1199
newsroom@lseg.com

Regional Contacts
Hong Kong: Fennie Wong +852 2164 3267
Sydney: Laura McCrackle +61 2 9293 2867

Notes to editors:

About FTSE Russell:
FTSE Russell is a global index leader that provides innovative benchmarking, analytics and data solutions for investors worldwide. FTSE Russell calculates thousands of indexes that measure and benchmark markets and asset classes in more than 80 countries, covering 98% of the investable market globally and trading on over 25 exchanges worldwide.

FTSE Russell index expertise and products are used extensively by institutional and retail investors globally. Leading asset owners, asset managers, ETF providers and investment banks use FTSE Russell indexes to benchmark their investment performance and create ETFs, structured products and index-based derivatives.

A core set of universal principles guides FTSE Russell index design and management: a transparent rules-based methodology is informed by independent committees of leading market participants. FTSE Russell is focused on applying the highest industry standards in index design and governance. FTSE Russell is also focused on index innovation and client collaboration as it seeks to enhance the breadth, depth and reach of its offering.

FTSE Russell is wholly owned by London Stock Exchange Group. For more information, visit www.ftserussell.com.

About London Stock Exchange Group:
London Stock Exchange Group (LSE.L) is a diversified international market infrastructure and capital markets business sitting at the heart of the world's financial community. The Group can trace its history back to 1698.

The Group operates a broad range of international equity, bond and derivatives markets, including London Stock Exchange; Borsa Italiana; MTS, Europe's leading fixed income market; and Turquoise, a pan-European equities MTF. It is also home to one of the world’s leading growth markets for SMEs, AIM. Through its platforms, the Group offers international business and investors unrivalled access to Europe's capital markets.

Post trade and risk management services are a significant part of the Group’s business operations. In addition to majority ownership of multi-asset global CCP operator, LCH.Clearnet Group, LSEG operates CC&G, the Italian clearing house; Monte Titoli, the T2S-ready European settlement business; and globeSettle, the Group’s newly established CSD based in Luxembourg.

The Group is a global leader in indexing and analytic solutions. FTSE Russell offer thousands of indexes that measure and benchmark markets around the world. The Group also provides customers with an extensive range of real time and reference data products, including SEDOL, UnaVista, Proquote and RNS.

Following the acquisition of Russell Investments, LSEG conducted a comprehensive review of the investment management business to analyse its strategic fit with the Group. This was concluded in February 2015, and LSEG is now exploring a sale of the business in its entirety.

London Stock Exchange Group is a leading developer of high performance trading platforms and capital markets software for customers around the world. In addition to the Group’s own markets, over 35 other organisations and exchanges use the Group’s MillenniumIT trading, surveillance and post trade technology.

Headquartered in London, with significant operations in North America, Italy, France and Sri Lanka, the Group employs approximately 4,700 people.

Further information on London Stock Exchange Group can be found at www.lseg.com.

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