SPONSORED FEATURE: Smart beta for all seasons

Fannie WurtzFunds Europe talks to Fannie Wurtz, Global Head of ETF, Indexing & Smart Beta Sales at Amundi, about the prospects for growth in the Smart Beta market. 

In November last year Amundi predicted that interest in Smart Beta solutions would help to double the size of its ETF and Indexing business within three years. Does this prediction still hold?
Yes it does. We currently manage €8 billion of assets in Smart Beta solutions and a total of €54 billion in our ETF, indexing and Smart Beta business and we believe Smart Beta assets will keep on growing because of the growing client interest that we see. At Amundi, the largest Asset Manager in Europe1, we have the experience and the capabilities to offer both active and passive Smart Beta solutions, through dedicated mandates, ETFs and Indexing products. In addition, Amundi has developed a dedicated advisory service to accompany investors in the mapping, the selection and the implementation of Smart Beta allocation. 

We aim to double the size of Amundi ETF,  Indexing & Smart Beta business thanks to our innovation and customisation capabilities, combined with an outstanding pricing power. 

Is Smart Beta here to stay?
European Smart Beta market is growing fast and we believe that investors’ interest will remain high in the next years. We see more and more Smart Beta products being launched and more and more index providers working on Smart Beta solutions, so we definitely believe that Smart Beta is here to stay. Even if cap-weighted indices continue to be dominant, Smart Beta offerings are getting bigger. We expect the bulk of Smart Beta AUM will continue to be concentrated in mandates, but Smart Beta ETFs are growing fast as well. 

Amundi has also said that there is no single approach to Smart Beta. How broad are the approaches? 
Smart Beta has a very broad definition, the simplest would say that Smart Beta strategies are every strategy that does not use the market capitalisation as a weighting scheme, thus applying alternative weighting schemes or a dynamic allocation towards risk factors. On the market, we observe a wide range of Smart Beta solutions, both active and passive, including mono and multi-strategy products. On our side, we provide active Smart Beta solutions through proprietary strategies covering Europe, Asia, Emerging and Global universe, covering minimum variance, optimum diversification and risk parity. Furthermore, Amundi’s index equity process enables to replicate any Smart Beta index, from any index provider, being based on single or multi-Smart Beta approaches. Our Index Equity process is, by construction, fully set up to deliver efficient replication of Smart Beta indices as it has a constant focus on minimising costs and monitoring turnover and liquidity. It also benefits from Amundi bargaining power – the group weighting more than €950 billion2 of Assets under Management – which is crucial when it comes to indexing.  

Is there enough transparency in the Smart Beta market? Is Smart Beta well understood by investors? 
Both the quality of the smart beta indices, through accurate selection of index providers, and client education are crucial. There is no one product that will outperform the market in all conditions. Among our professional clients there are a number of sophisticated institutional and sovereign investors that know exactly what they are looking for in terms of Smart Beta investment solutions but we also see a growing demand within the private wealth market. Some clients are already used to Smart Betas and know exactly what they want, others need to be guided in their selection. Having a wide range of Smart Beta products, Amundi can easily guide clients in their choices.

Talking about the Smart Beta ETF market , how many clients have now invested in Smart Beta ETFs? 
We observe increasing demand from the market: according to the results of the Edhec Risk survey3, 25% of the interviewed professionals have already invested in Smart Beta ETFs and a further 40% intend to do so in the near future. Smart Beta solutions are able to provide an answer to specific market conditions and should be intended as complementary products to traditional cap-weighted solutions, as specific factors and alternative weighting schemes can be useful for diversifying portfolios and to capture long-term outperformance.

Of course, there is no perfect investment solution. It is all about building up diversification into your portfolio and when I look at how Smart Beta solutions are being used by our clients, it is to reduce risk through weighting and to increase the performance in the long run.

How will the Smart Beta ETF market develop in the future? Is there any concern that a so-called second wave of Smart Betas could bring too much complexity to the market?
We strongly believe that the Smart Beta market in general, and the Smart Beta ETF market too, will continue to grow further. Multi-factor Smart Beta strategies represent a very important area of growth. In 2014 we parented with EDHEC Risk Institute and Scientific Beta to create a multi-Smart Beta index. This index combines a selection of four factors, chosen for their positive expected long-term reward (low volatility, valuation, size, momentum) with five Smart Beta strategies, aiming at improving risk-adjusted performance compared to the average component index. 

As for the issue of complexity, it is important that investors understand the different features and different risk profiles that are involved. The mono-factor ETFs will do well in certain market conditions whereas the multi-factor ETFs use either dynamic signal-based or systematic approaches to ensure robustness in the long run. What is crucial, in a context of growing complexity, is to be able to support investors in their allocation choices. 

In November last year Amundi predicted that interest in Smart Beta solutions would help to double the size of its ETF and Indexing business within three years. Does this prediction still hold?
Yes it does. We currently manage €8 billion of assets in Smart Beta solutions and a total of €54 billion in our ETF, indexing and Smart Beta business and we believe Smart Beta assets will keep on growing because of the growing client interest that we see. At Amundi, the largest Asset Manager in Europe1, we have the experience and the capabilities to offer both active and passive Smart Beta solutions, through dedicated mandates, ETFs and Indexing products. In addition, Amundi has developed a dedicated advisory service to accompany investors in the mapping, the selection and the implementation of Smart Beta allocation. 

We aim to double the size of Amundi ETF,  Indexing & Smart Beta business thanks to our innovation and customisation capabilities, combined with an outstanding pricing power. 

Is Smart Beta here to stay?
European Smart Beta market is growing fast and we believe that investors’ interest will remain high in the next years. We see more and more Smart Beta products being launched and more and more index providers working on Smart Beta solutions, so we definitely believe that Smart Beta is here to stay. Even if cap-weighted indices continue to be dominant, Smart Beta offerings are getting bigger. We expect the bulk of Smart Beta AUM will continue to be concentrated in mandates, but Smart Beta ETFs are growing fast as well. 

Amundi has also said that there is no single approach to Smart Beta. How broad are the approaches? 
Smart Beta has a very broad definition, the simplest would say that Smart Beta strategies are every strategy that does not use the market capitalisation as a weighting scheme, thus applying alternative weighting schemes or a dynamic allocation towards risk factors. On the market, we observe a wide range of Smart Beta solutions, both active and passive, including mono and multi-strategy products. On our side, we provide active Smart Beta solutions through proprietary strategies covering Europe, Asia, Emerging and Global universe, covering minimum variance, optimum diversification and risk parity. Furthermore, Amundi’s index equity process enables to replicate any Smart Beta index, from any index provider, being based on single or multi-Smart Beta approaches. Our Index Equity process is, by construction, fully set up to deliver efficient replication of Smart Beta indices as it has a constant focus on minimising costs and monitoring turnover and liquidity. It also benefits from Amundi bargaining power – the group weighting more than €950 billion2 of Assets under Management – which is crucial when it comes to indexing.  

Is there enough transparency in the Smart Beta market? Is Smart Beta well understood by investors? 
Both the quality of the smart beta indices, through accurate selection of index providers, and client education are crucial. There is no one product that will outperform the market in all conditions. Among our professional clients there are a number of sophisticated institutional and sovereign investors that know exactly what they are looking for in terms of Smart Beta investment solutions but we also see a growing demand within the private wealth market. Some clients are already used to Smart Betas and know exactly what they want, others need to be guided in their selection. Having a wide range of Smart Beta products, Amundi can easily guide clients in their choices.

Talking about the Smart Beta ETF market , how many clients have now invested in Smart Beta ETFs? 
We observe increasing demand from the market: according to the results of the Edhec Risk survey3, 25% of the interviewed professionals have already invested in Smart Beta ETFs and a further 40% intend to do so in the near future. Smart Beta solutions are able to provide an answer to specific market conditions and should be intended as complementary products to traditional cap-weighted solutions, as specific factors and alternative weighting schemes can be useful for diversifying portfolios and to capture long-term outperformance.

Of course, there is no perfect investment solution. It is all about building up diversification into your portfolio and when I look at how Smart Beta solutions are being used by our clients, it is to reduce risk through weighting and to increase the performance in the long run.

How will the Smart Beta ETF market develop in the future? Is there any concern that a so-called second wave of Smart Betas could bring too much complexity to the market?
We strongly believe that the Smart Beta market in general, and the Smart Beta ETF market too, will continue to grow further. Multi-factor Smart Beta strategies represent a very important area of growth. In 2014 we parented with EDHEC Risk Institute and Scientific Beta to create a multi-Smart Beta index. This index combines a selection of four factors, chosen for their positive expected long-term reward (low volatility, valuation, size, momentum) with five Smart Beta strategies, aiming at improving risk-adjusted performance compared to the average component index. 

As for the issue of complexity, it is important that investors understand the different features and different risk profiles that are involved. The mono-factor ETFs will do well in certain market conditions whereas the multi-factor ETFs use either dynamic signal-based or systematic approaches to ensure robustness in the long run. What is crucial, in a context of growing complexity, is to be able to support investors in their allocation choices.

¹No.1 European asset manager based on global assets under management (AUM ) and the main headquarters being based in Europe – Source IPE “Top 400 asset managers” published in June 2015 and based
on AUM as at December 2014
²Amundi Group figures as of 30 June 2015
³Source: Edhec European ETF Survey published in March 2015

For professional investors only. This material is not of a regulatory nature and does not constitute investment advice, recommendation or an offer or invitation to purchase or sell any Fund. The value of an investment can go down as well as up and outcomes are not guaranteed. Investors may not get back their original investment For further details regarding the risks, please refer to the Key Investor Information Documents (“KIID”) and the Prospectuses for the Funds which are available upon request or on amundietf.com. Amundi is the management company of the AMUNDI ETF Funds. Financial Promotion issued in the UK by Amundi, an investment manager regulated by the AMF under n° GP 04000036. Registered office: 90, Boulevard Pasteur 75015 Paris Cedex 15 - France - 437 574 452 RCS Paris.

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