The drift towards passive investment continues. Tower Watson, an investment consultant that advises many major pension schemes, says its clients globally allocated over
$8 billion (€7 billion) on a net basis to ‘smart beta’ strategies last year.
This took total investment by the adviser’s clients in smart beta to $40 billion from $32 billion a year before, and $20 billion in 2012, company data released today shows.
Luba Nikulina (pictured), global head of manager research at Towers Watson, says interest in smart beta, which is a form of enhanced passive investment, remains high, but there is a “considerable degree of caution” about the proliferation of products labeled as smart beta.
“We believe smart betas should be easy to describe and understand, which many of these labelled products are not, as often they are poorly implemented and seem naïve about the inherent risks,” she says.
She also says negative sentiment towards active management may be “somewhat overblown”, and that now is a “good time to be looking for alpha given increasing market volatility and the lack of clear beta opportunities”.
Somewhat ironically, she adds, smart beta has sharpened and refined active management to be “truer than it used to be”.
Towers Watson data also shows that real estate was the most favoured asset class for diversification purposes last year, both in smart beta and outside of it.
Comparing the figures to 2010, Towers Watson says that real estate attracted over $3 billion in 2014 compared to $1.6 billion in 2010, and one-tenth of this was in smart beta.
Infrastructure attracted $2.3 billion compared to $59 million in 2010, and one-third was in smart beta.
According to the data, credit selections by clients in 2014 totalled $34.8 billion ($19.3 billion in 2010), of which the majority were invested in global bond mandates, then US mandates and, thirdly, Australian bonds.
Nikulina says that smart beta innovation in bonds has been slower than in equities, partly due to the nature of the indices and the level of complexity in the asset class, but she says this is changing.
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