More Chinese investors expected to jump into ‘smart beta’ market
New asset class promises a better risk and return trade-off than conventional market-cap weighted indices: very appealing amid volatile markets
Despite capital inflow into “smart-beta” exchange traded funds (ETF) hitting a record high globally, takeup for the new breed of ETFs – which track every conceivable segment of the market – by Chinese investors remains cool.
The indifferent reaction so far is blamed on a lack of investment education and the country’s ongoing demand for higher yield. But analysts now believe the appeal of the new investment tool is spreading in the mainland.
Smart beta, also referred as strategic beta, represents a new middle ground for the active-to-passive investment spectrum.
They do not just passively track traditional market-capitalisation-weighted benchmarks, but tilt towards certain characteristics, called “factors”, such as dividend, growth or low volatility, when screening stocks in an index, according to definition given by Morningstar.
Experts say their increased popularity is linked to a desire for portfolio risk management and diversification as well as seeking to enhance risk-adjusted returns above cap-weighted indices.
At the end of June, total assets invested in globally-listed smart beta ETFs climbed to a record high US$429 billion, data from independent research firm ETFGI shows. Record levels of assets were seen in the United States, Canada, Europe and Japan.