Global investors pin hopes on smart-beta ETFs

Institutional investors and asset management firms around the world expressed keen interest in the growing smart-beta equity traded funds market at a forum in Seoul on Thursday, hoping them to bring high yields amid the prolonging low interest rate environment.

At the 2016 Global ETF Conference hosted by Korea Exchange at a hotel in Yeouido in western Seoul, global financial investors agreed on the growth prospects of the smart-beta ETF market, in which they can achieve higher yields with more efficiency. 

Smart-beta ETFs refer to index funds that measure various factors that influence fund yields, including market volatility, corporate values and growth momentums, in a bid to help investors make better decisions and generate higher returns.

In the Asia-Pacific region, as much as $10.5 billion worth of assets were being managed in smart-beta ETFs as of June, growing nearly 48 percent from a year earlier, according to data by Morningstar Data.

“Smart-beta ETFs with minimum volatility grew about 35 percent since 2011 as they produced higher yields than others,” said Geir Espeskog, managing director of BlackRock Asia Pacific at the conference. “Usually when inflation remains low, such ETFs have been performing well.”

Unlike traditional ETFs tracking indexes, smart-beta ETFs selectively take into account values of certain businesses, allowing their growth momentum and minimum volatility to generate surplus yields in the long run, he said.

Jackson Loi, managing director at Vanguard Investments, said: “Smart-beta ETFs might satisfy those hunting for higher yields. ... Vanguard focuses on companies’ balance sheet quality, market value, size, growth momentum and volatility in designing smart-beta ETFs.”

However, Loi acknowledged that while smart-beta ETFs can guarantee surplus yields in the long term, they may show lower yields than ordinary funds from time to time.

“It is quite difficult to make the investment in a right time,” he added.

Including the heads of BlackRock and Vanguard, the two largest asset management institutions in the world, about 500 fund industry officials partook in the seventh annual forum by KRX.

“KRX will support pension funds at home and abroad to increase investments in ETFs,” said KRX CEO Jeong Chan-woo at the event. “While helping institutional investors use ETFs as tools for strategic asset allocation, KRX will also let in retail investors.”

KRX has been boosting investments in ETFs among the general public, dubbing it “Individuals’ Wealth Increase Project” under the government’s initiative to help individual households achieve better yields in the low interest rate market.

By Song Su-hyun (song@heralcorp.com)