Adviser research: ETFs are the product of choice; smart beta becomes mainstream
September 2024
New market research from VanEck has revealed financial professionals are increasingly turning to exchange traded funds (ETFs) as their investment product of choice, with changing portfolio strategies and performance over active funds driving greater usage among advisers, brokers and portfolio managers.
The annual survey of Australian financial professionals, now in its ninth year, demonstrated a growing appetite for ETFs. 70% of respondents said they had allocated to ETFs more frequently over the last 12 to 18 months (up from 62% last year), with almost all financial advisers (95%) indicating they use ETFs (up from 91% in 2021 and 87% in 2020).
Changes to economic outlooks have contributed to this higher usage, with 42% citing a change in portfolio strategy as one of the main reasons they used ETFs more often. Reduced portfolio costs (49%) and increased knowledge and awareness of ETFs internally (36%) also made the top three drivers for 2024.
Arian Neiron, CEO & Managing Director – VanEck Asia Pacific, said: “The findings from our latest survey demonstrate an overwhelming preference for ETFs by financial professionals. The improved control over portfolio outcomes was reported as one of the key advantages of ETFs. Advisers want more control, better relative performance, and greater cost efficiency, and ETFs are uniquely placed to offer all three.
The survey found that of the 47% of respondents who had an existing smart beta allocation, most (59%) used at least two of these strategies across their client portfolios, 64% found they outperformed active strategies, and 99% were satisfied with their smart beta investments.
“Smart beta strategies have transitioned from market disruptor to the mainstream. A significant proportion of practitioners are incorporating smart beta ETFs into portfolios, with one in two respondents saying they had an existing allocation and a further 21% currently evaluating them. We anticipate a greater adoption rate as more financial professionals become acquainted with the benefits and portfolio construction opportunities of smart beta ETFs,” said Neiron.
Smart beta is an evolution of the first-generation ETFs. These go beyond tracking a market capitalisation index by applying more sophisticated investment strategies with targeted outcomes – typically for a fraction of the cost of active strategies.
The annual VanEck Australian Smart Beta Survey is the largest survey of its kind in the world, capturing investment trends in the Australian market. This year, the survey attracted a record 945 responses from industry professionals working in Australia, including financial advisers, brokers, portfolio managers and analysts.