Asian investors turn to smart-beta ETFs as active managers' results disappoint

Singapore

INVESTORS in Asia are embracing smart-beta exchange-traded funds (ETFs) that can boost profits and cut costs in the current climate of low investment returns and even lower interest rates.

Traditional beta measures the volatility of a security in relation to the market. Smart-beta products are index funds that include more factors in investment decisions than pure passive strategies do, taking into account volatility and market inefficiencies to generate higher returns.

This strategy makes smart-beta investment a little more expensive to manage than traditional index funds, which simply mimic the composition of a benchmark, but cheaper than actively managed products.

Assets under management (AUM) in smart-beta ETFs grew 47.5 per cent to US$10.5 billion in the 12 months through June in the Asia-Pacific, according to Morningstar data. The number of smart-beta ETFs rose to 130 across the region from 97 a year earlier, t…