Dividend Strategies Dominate Smart Beta ETFs

Income-producing strategic beta ETFs dominate the European market, followed by risk-oriented strategies, says Morningstar analyst Kenneth Lamont

Kenneth Lamont 13 March, 2019 | 9:14AM

 

 

Kenneth Lamont: Following years of strong growth, the European strategic-beta exchange-trade product - an umbrella term that includes ETFs and ETCs - market shrank by 5% over the course of 2018. However, in what was a challenging year for financial markets, they still collected close to £4 billion in net new money, representing an organic growth rate of 8%.

In 2018, a total of 20 new strategic-beta products hit the shelves, less than a quarter of the launches seen the previous year. This drop is the natural consequence of the market reaching maturity.

As a direct result of crowding in the single-factor equity space, most new entrants now employ multifactor strategies. The odd new single-factor launch tends to colour in missing geographical coverage using existing strategies rather than attempt to seriously innovate further in the space.

Despite the rising popularity of multifactor strategies, single-factor ETFs still horde the most assets in the European strategic-beta marketplace. In particular, dividend strategies remain the most popular segment, accounting for 39% of total strategic-beta ETP assets in Europe. Their continued popularity should come as little surprise in the prevailing low-rate environment where dependable investment income is rather hard to come by.

Risk-oriented strategies - a grouping which includes minimum volatility and minimum variance strategies - form the second-largest grouping with 15% of assets. A strong historical track-record and a jittery global economy saw them become the major beneficiary of inflows in 2018. This is despite the expectation that rates will continue to rise, an environment in which lower-risk stocks tend to lag.

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Kenneth Lamont  is a passive funds research analyst for Morningstar Europe.

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