Investment group offers exchange-traded funds with intellectual beta strategies.
In the dynamic world of exchange-traded funds (ETFs), smart beta strategies are making a significant impact in the European market. Stefan Kuhn, the Germany head of the ETF division at SPDR from State Street Global Advisors, is one of the key figures driving this change.
Currently, the most popular smart beta ETF strategies in Europe emphasize factor-based investing, such as value, momentum, low volatility, quality, and multi-factor approaches. However, detailed strategy-level popularity data is limited, with multi-factor approaches, risk-minimizing strategies, and dividend ETFs leading the pack.
While core equity ETFs continue to dominate inflows, smart beta ETFs have experienced some net outflows recently, indicating a moment of cautious investor sentiment. This trend, however, is far from dampening the growth of the European ETF market.
Several prominent global asset management companies are active and influential in Europe’s ETF space. These include large established players such as State Street Global Advisors (SPDR ETFs), Vanguard, and asset managers like Robeco, which focuses on active and quantitatively driven ETF strategies. New entrants are also gaining ground, offering innovative products that appeal to institutional and increasingly retail investors amid growing European demand for flexible, transparent investment vehicles.
The expansion of the European ETF market is being driven by increasing investor education, regulatory evolution, and the rising adoption of both active and smart beta ETFs. While active ETFs still represent a small portion of the total European ETF market compared to the US, they are growing rapidly.
In the European market for strategy ETFs, dividend ETFs make up 38 percent of the assets. Many other providers in the market have adopted the definition of smart beta as everything that doesn't target classic market capitalisation weightings. For Morningstar, dividend ETFs are considered part of the smart beta category.
At SPDR, the term "smart beta" encompasses products other than just factor ETFs. Products that fall under the factors of substance, low market risk, and dividends are included in their smart beta offerings. The largest provider in the European market for strategy ETFs is iShares with a 45 percent market share.
Amundi comes in second with 12 percent of the market share, followed by State Street (10 percent) and UBS (7 percent) in the European market for strategy ETFs. DWS is in fifth place with 5 percent. Investors with money in factor ETFs had a less severe drop in March compared to the standard counterpart in the MSCI World strategy index.
The definition of smart beta at SPDR includes everything that doesn't target classic market capitalisation weightings. Factor, alternative beta, strategic beta, or smart beta ETFs are used to outperform standard indices or reduce portfolio volatility. Providers of factor ETFs claim "Mission accomplished" for a risk-averse strategy last spring.
Net inflows into strategy ETFs in Europe were $9.5 billion in the reporting year. Multifactor approaches, which bundle several strategies, are in third place with a little over 11 percent of the assets in the European market for strategy ETFs. Risk-minimizing strategies follow with 17 percent of the assets in the European market for strategy ETFs.
The European market for strategy ETFs is relatively small, with 88 percent of funds being in products listed for the US market. Despite this, the market is expanding with active and smart beta ETFs gaining momentum, supported by new entrants and growing retail investor interest, especially in markets like Germany.
Personal finance investors in Europe may find interest in smart beta ETFs, as they represent a growing segment of the European ETF market. While SPDR at State Street Global Advisors includes products other than just factor ETFs under their definition of smart beta, the largest provider in the European market for strategy ETFs is iShares with a 45 percent market share. These diversified ETFs, such as multifactor approaches and risk-minimizing strategies, make up a significant portion of the strategy ETF market, indicating increased focus on personal-finance investing in the region.
