Global smart beta adoption rates among institutional investors hit a record 58% in 2019, up 10% from the previous year, according to FTSE Russell's annual global institutional asset owner smart beta survey released Monday.
FTSE Russell also released the results of its first global survey on ESG and smart beta.
The sixth annual smart beta survey found that 78% of asset owners have implemented or are considering a smart beta index-based strategy in 2019. Adoption of smart beta strategies increased to 60% in North America, up 18% from the previous year. The highest adoption rate, 65%, remains with European asset owners.
Adoption rate growth was recorded in all AUM tiers: less than $1 billion; $1 billion to $10 billion; and more than $10 billion.
According to FTSE Russell, the survey shows that asset owners are becoming increasingly comfortable with smart-beta strategies and there is less uncertainty about their longer-term track records. The number of institutions adopting smart beta for cost savings objectives grew to 31% in 2019 from 15% in 2014.
The most popular approach was multifactor index-based strategies, which increased to 71% globally this year, a 22% increase over 2018. Among asset owners implementing a smart beta strategy for the first time within the last two years, 69% use a multifactor combination.
Rolf Agather, managing director of research and innovation for FTSE Russell, said that risk reduction, return enhancement and improved diversification are driving adoption of smart beta by institutional investors globally, and sustained growth is expected.
FTSE Russell conducted its first global survey on ESG and smart beta in January and February among 178 global asset owners, with 46% in North America, 29% in Europe and 19% Asia Pacific.
"Integrating or looking to integrate ESG into smart beta strategies is rapidly becoming the norm, especially in Europe, where over three-quarters of asset owners have already applied or intend to apply ESG into smart beta allocations. We call this integration 'smart sustainability' and these trends are reflected in our experience of working with clients in new smart beta mandates," FTSE Russell head of sustainable investing David Harris said in a statement.
The number of European asset owners expecting to apply ESG considerations to a smart beta strategy increased to 77% in 2019 from 55% in 2018. Adoption of ESG considerations into smart beta strategies remained flat in North America, with respondents citing a lack of stakeholder demand as the main reason.
For asset owners expecting to add ESG considerations into their smart beta strategies, 74% considered governance a key issue, followed 66% for carbon and 64% for social factors. Among asset owners with AUM greater than $10 billion, 58% expect to increase their allocation to smart beta and ESG.
