Access to exposures and markets that are not available off the self from a passive manager is anticipated to have a huge impact on the industry over the next 10 years.
Investors would be able to avoid paying active management fees to gain exposure that can be achieved more cheaply elsewhere.
"There is quite a lot going on in the industry as to whether a number of things can be [done] far more cheaply than active management," Towers Watson global head of investment research Craig Baker told InvestorDaily.
"You want to focus active management on those that are genuinely producing alpha you can't get through more systematic approaches and then using these systematic approaches at a lower cost," he said.
This would have an impact on the total cost being paid by asset owners generally to asset managers.
"We already have [seen an interest]. It's already something that has taken off. You get a lot of people taking about it in the equities space and less talked about in other areas but we see that changing and just being a big movement in the industry in the next two or three years," Mr Baker said.
The shift to a smart beta approach would also put pressure on asset management companies to evolve.
"It's going to be quite clear that those that are able to show that they're adding genuine alpha and have diversified away from what other people are doing, they're going to be the ones that are more successful," Mr Baker said.
"Especially if they recognise the need to ensure alignment of interest between themselves and their clients through better fee structures and the like then that's going to be the ones who are successful over the next 5-10 years," he said.
Towers Watson's Smart Beta solutions cover a range of investment strategies that fall in three main categories: diversity or alternative asset classes; long-term themes; and systematic risk premia capture.
They range from relatively simple approaches such as real estate securities and specialist infrastructure strategies to create liquid diversity to doing existing betas better, such as non-market cap weighted equities. They also include more specialist solutions with niche asset managers, such as reinsurance, currency carry and volatility premia.
