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
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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.


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

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