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Alternative Market Briefing

European 'smart beta’ allocations to reach $500.2bn within five years - Part 1

Monday, May 26, 2014

Komfie Manalo, Opalesque Asia:

'Smart beta’ is another buzzword to hit the asset management industry over the past decades. Industry experts predicted allocations into European smart beta could reach $500.2bn (GBP 297bn) within the next five years from its current size of $131.4bn (GBP 78bn), said data tracker Spence Johnson. Indeed, one U.S. firm closely linked with smart beta, Research Affiliates, currently has some $12bn in assets using its fundamental benchmarks even though it is less than 10 years old.

A report by Financial News quoted Research Affiliates chief executive Robert Arnott as saying, "Two of the three largest institutional investors in each region are now doing a pilot program of at least a billion in fundamental indexing."

Smart beta allows investors to take an accepted index such as the FTSE 100 and then re-rank the companies in it by one or several sets of rules. In effect, smart beta fund managers rejig the benchmark index, change the weight of its constituents to produce higher return than the index would have produced in its original format.

But the rise in smart beta is a bane to other investments. A study commissioned by the State Street Global Advisers showed that assets held in "actively managed funds" in the UK dropped to 53.6% in 2013 from 66.8% in 2009.

JP Morgan Asset Management......................

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