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New investors seduced by high dividend smart beta ETFs

New investors seduced by high dividend smart beta ETFs

New investors in smart beta exchange traded funds (ETFs) favour high-dividend, low-volatility and fundamentally weighted strategies, a new survey commissioned by Invesco PowerShares has found.

The survey asked 300 financial advisers and professional investors what their favourite smart beta ETFs were – that is, ETFs that track specially designed indices rather than standards such as the FTSE 100 or the S&P 500, that are based solely on market capitalisation.

Seventy-two per cent of new investors favoured ETFs that targeted companies with favourable dividend payments.

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ETFs that targeted companies with less volatile share price trajectories were the second most popular smart beta strategies, with 69 per cent of respondents saying they favoured these funds.

Smart beta indices that tracked companies based on fundamentals were the third favourite, with 59 per cent stating they would invest in them.

Bryon Lake, head of Invesco PowerShares, Emea, said the findings were confirmed by Invesco’s market experience.

He added that Invesco’s high-dividend, low-volatility ETF was its second most popular smart beta ETF.

“We will continue to build out our suite of high-dividend low-volatility products to meet the demand we see for more nuanced exposure to major equity markets. We think this will become increasingly important in the absence of broader equity market stability,” he said.

Smart beta has seen a surge in popularity in recent years.

In January, Morningstar put the total assets in smart beta funds at $525bn (£357.35bn) worldwide – five times the pre-2008 figure.

Advisser view:

Bob Wilson, a financial adviser with GreenSky Wealth, was sceptical about the value of smart beta funds, describing them as a “gimmick”.

“We don’t use them, and we have no intention of ever using them. They’re trying to be too clever,” he told Financial Adviser, adding that he hoped he was shown to be wrong.

He said some financial advisers’ eyes “light up” when they are presented with imaginative new products. “But if you look at history, the traditional investment strategies are the best,” he added.

james.fernyhough@ft.com