In its new white paper entitled The New Active Decision in Beta Management, Northern Trust found asset owners are making active decisions when determining the allocation of their total portfolios, moving the risks associated with the selection of exposures.
“Over the last little while we have witnessed a blurring of the lines between active and passive investment styles so to speak,” Northern Trust head of international equity index for Asia Pacific Ken Chuah told InvestorDaily.
“Smart beta really refers to the increasing availability of tools and investment vehicles, which allow asset owners to invest in the drivers of returns in markets.
“So really that’s the active part, the part where we try to capture factors or drivers of returns or markets that used to be the sole domain of active managers.”
The research surveyed the views of 51 institutional investors across the globe and found that 64 per cent of respondents defined alternative indexes to be an active decision, while the remaining 36 per cent thought it was passive.
Seventy one per cent of investors in the survey said the funding for the alternative index portion of their portfolio came from assets mainly invested in active strategies.
“This is key as, in order to reap the benefits of alternative indexes, investors need to ensure their allocations are truly aligned to their objectives and treat their allocation in the same way they would an active decision,” Northern Trust managing director for asset management, Asia Pacific Bo Kratz said.
Northern Trust has said looking at alternative index allocation as an active decision within beta management can be a valuable tool for investors and that as more products come on the market, uptake will increase.
“From here on, because of the availability of tools and vehicles, a lot of the actively orientated types of investments can now be implemented more cheaply by the form of smart beta indices,” said Mr Chuah.
“So investors are already accruing the benefits of using it.”
