Advanced Beta Comes of Age: State Street Global Advisors Study Finds Appetite Growing Among Institutional Investors

More than 60 Percent of Investors See Advanced Beta as Viable Alternative for Active Management

BOSTON--()--According to a new State Street Global Advisors (SSgA), study1, “Beyond Active and Passive, Advanced Beta Comes of Age,” advanced beta strategies are playing a more influential role in some of the world’s largest portfolios. Forty-two percent of investors currently use advanced beta and another 24 percent plan to do so over the next three years.

Advanced beta, also referred to as smart beta, combines elements of alpha and beta in that it seeks to capture performance through targeted, rules-based investment strategies, while retaining the benefits of traditional indexing, including transparency, objectivity, low cost and diversification. Seventy-five percent of the investors surveyed said that the strategies are an attractive alternative to both active and passive fund management and a powerful evolution in asset allocation strategies.

“Advanced beta strategies play an important role in helping investors to construct holistic investment strategies while keeping risk and costs in check,” said Lynn Blake, CIO, global equity beta solutions at SSgA. “Our study found that more than half of institutional investors in North America and Europe will be using advanced beta strategies in the near future. The recent spike in equity market volatility, and a reduced appetite for active strategies, may encourage further adoption of advanced beta based on its track record of improving risk adjusted returns.”

Key findings:

  • Although advanced beta is often marketed as an alternative to cap-weighted indexing, many investors see advanced beta as a replacement for active and are three times more likely to fund an advanced beta allocation from active rather than passive
  • Europe is ahead of US institutional investors in adoption, allocation and measurement of advanced beta strategies with 25 percent of European respondents allocating 20 percent or more of equities in their portfolio to advanced beta as compared to four percent for North American respondents
  • Nearly 40 percent of investors with a current allocation to advanced beta strategies are using low-volatility and low-valuation, either combined or separately
  • While seventy percent of investors report high levels of awareness about advanced beta, only 40 percent are confident about implementation

“The main advantage that advanced beta strategies provide is the ability to select a portfolio that best meets specific risk and return objectives, versus taking a one-size-fits-all approach,” said Kristi Mitchem, executive vice president and head of the Americas institutional client group at SSgA. “While we are still on the early part of the adoption curve with these strategies, investors are becoming aware that similar returns can be achieved at a lower cost than traditional active management. That is a trend that can’t be ignored.”

The study surveyed 300 institutional investors from North America and Europe to measure adoption and implementation of advanced beta strategies. To see the full-results, please click here.

About State Street Global Advisors

State Street Global Advisors (SSgA) is a global leader in asset management. The firm is relied on by sophisticated investors worldwide for its disciplined investment process, powerful global investment platform and access to every major asset class, capitalization range and style. SSgA is the asset management business of State Street Corporation, one of the world’s leading providers of financial services to institutional investors.

1State Street Global Advisors commissioned Longitude Research to conduct a survey of 300 institutional investors including public and private pension funds, endowments, foundations, insurance companies and private banks. Respondents were from North America and Europe and represent institutions with more than $1 billion in assets. In addition to the survey, a series of in-depth interviews with senior professionals in the institutional investor community also occurred.

Investing involves risk including the loss of principal. The views expressed in this material are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

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State Street Corporation
Elizabeth Bartlett, +1 617-662-2903
twitter: @StateStreet


State Street Corporation
Elizabeth Bartlett, +1 617-662-2903
twitter: @StateStreet