Value-based smart beta ETFs outperformed traditional strategies in 2022, which experts say is likely to drive a revival in the fortunes of smart beta in Europe.
‘The Cerulli Edge-European Monthly Product Trends’ report said assets under management (AUM) of “fundamental-tilted” funds have been more stable than traditional strategies and that low or negative growth, along with stagnant wages and high inflation, had led to improved conditions for smart beta investing.
Value was a standout factor in terms of performance and flows, which outperformed market cap-weighted funds in 2022.
AUM of European smart beta ETFs was €93.7 billion by November 2022, compared to €102.1 billion in December 2021. Total net European inflows into value funds stood at €15.1 billion in October last year, falling just €0.7 billion short of the inflow figure for December 2021, the report said.
Despite performing worse than value, quality strategies could outperform the former in 2023, as they tend to do better during recessions, said Fabrizio Zumbo, European asset and wealth management researcher at Cerulli Associates.
European smart beta ETF issuers expect the highest growth to be in the UK market in terms of assets over the next 12 to 24 months.
Managers predicted Switzerland to experience the second highest level of growth after the UK, with Italy anticipated to undergo the least positive activity.
“Smart beta growth across Europe will depend on how these factor-based strategies perform during the challenges that 2023 brings and whether this performance is enough to attract investor flows,” said Zumbo.
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