Smart Beta ETFs Continue Packing On Assets

As has been widely documented, smart beta exchange traded funds are one of the fastest-growing segments of the broader ETF universe. Data continues to confirm smart beta growth is expected to continue as more institutional investors embrace fundamentally-weighted strategies.

“FTSE Russell released this week the results of its early 2017 survey of almost 200 asset institutions, with a combined assets under management of $2 trillion about their investments in and views toward smart beta indices,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Tuesday. “To us, the trends were favorable, as 46% of global respondents said they had a smart beta product allocation.”

FTSE Russell is one of the larges providers of indexes for use by issuers of ETFs. The firm's indexes are tied to behemoth ETFs such as the iShares Russell 2000 ETF IWM, the largest small-cap ETF; and the Vanguard FTSE Emerging Markets ETF VWO, the largest emerging markets ETF.

FTSE Russell is also provides a wide range of smart beta indexes, many of which are tied to some growing ETFs. That includes the O'Shares FTSE US Quality Dividend ETF OUSA and the JPMorgan Diversified Return US Equity ETF JPUS.

OUSA “tracks a FTSE Russell index constructed based on three factors (dividends, quality and low volatility),” said Rosenbluth. “JPUS tracks a FTSE Russell index based on four, not identical, factors (quality, low volatility, value, momentum).”

OUSA follows the FTSE US Qual/Vol/Yield Factor 5% Capped Index, which “is designed to measure the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in the United States that meet certain requirements for market capitalization, liquidity, high quality, low volatility and dividend yield, as determined by FTSE-Russell,” according to O'Shares.

JPUS, which has mid- and small-cap counterparts, features vastly different sector exposures than the S&P 500. For example, JPUS is significantly underweight the technology sector while sporting a more than 13 percent utilities allocation, which is dramatically overweight that sector's footprint in the S&P 500. JPUS allocates 30.5 percent of its combined weight to the two consumer sectors.

Year-to-date, investors have added $12.9 million to OUSA and $16.5 million to JPUS. OUSA and JPUS are up 5.8 percent and 8.4 percent, respectively, year-to-date. CFRA has Marketweight ratings on both ETFs.

Disclosure: The author owns shares of VWO.