A new survey by AXA Investment Managers (AXA IM) shows large Australian investors are embracing the growing global trend of Smart Beta, with the majority (85%) of surveyed local investors viewing Smart Beta as a sensible approach to beta harvesting and a viable replacement for traditional passive index or core active equity funds.
AXA IM defines Smart Beta as offering long-term investors a more efficient way of capturing market beta while avoiding the limitations of both market cap weighted indices and alternative weighting schemes – such as exposure to undercompensated risk, poor diversification and transaction cost leakage.
In March, AXA IM surveyed 90 Australian institutional investors, including leading super funds and consultants, at a series of educational Smart Beta roundtable events in Brisbane, Melbourne and Sydney.
According to the survey, one third (33%) of investors and consultants currently allocate money to Smart Beta equity strategies and 17% in Smart Beta bonds strategies. AXA IM’s London-based Head of Institutional Client Strategy, Tim Gardener, said while investors were clearly showing initial interest in the Smart Beta concept, allocations were likely to increase as global investors became more aware of the shortcomings of traditional indices.
“For years prior to the global financial crisis, investors were generally comfortable tracking indices, despite their flaws and no real long-term harm was caused. The decade facing us will be a period of change and uncertainty, and in our view, there are real dangers in blindly tracking indices based on the past. At AXA IM, we decided the smarter way to harvest beta was not to design a clever index and track it, but rather to develop a series of sensible, transparent, pragmatic and low cost strategies that address the limitations of both market cap indices and alternative indices,” Mr Gardener said.
Demand for Smart Beta solutions to grow in lead up to MySuper
AXA IM’s Director of Australia & New Zealand, Craig Hurt, said he anticipates increased interest around Smart Beta solutions in the Australian market as the MySuper deadline draws closer.
“As of 1 July 2013, Australian super funds will be required to offer a low cost transparent default balanced fund option via a MySuper product. Investors are now facing a new period where return expectations are much lower than we have seen in the past, so there is increasing pressure on fees and hence a strong move to passive investing. Our concern is that in time, this shift will see investors potentially exposed to market bubbles,” Mr Hurt said.
In response, AXA IM recently launched its SmartBeta™ global equity strategy with $325m in assets. In designing the strategy, AXA IM leveraged its AXA Rosenberg team’s expertise in engineering and managing quant equity strategies.
The AXA IM credit strategy launched in 2012 and has already attracted over $1bn in assets from leading global pension plans. Now, Australian investors can also access the SmartBeta™ Bond Strategies via the newly launched AXA World Fund Global SmartBeta™ Credit Bonds.
“We’re already seeing significant interest from investors globally and locally, and expect to see increased demand ahead of the MySuper deadline,” Mr Hurt concluded.
