Who's Really Using Smart Beta Funds

April 04, 2016

[This article appears in our May issue of ETF Report.]

There's no doubt that smart beta has captured investors' hearts and minds. Last year, smart-beta ETFs accrued an astounding $52 billion in fresh net assets—or roughly 30% of all inflows into U.S. ETFs, according to FactSet. And in a recent ETF.com/BBH survey of financial advisors, 99% said they planned to maintain or increase their smart-beta ETF exposure in 2016.

But when it comes to asset flows, sometimes popularity can be an illusion. So we decided to take a closer look at who's using smart-beta funds—and why.

Methodology Here

We compared ownership of the largest smart-beta funds (by assets under management) for several market sectors, including broad-based U.S. equity, international equity and U.S. sectors, as well as smart-beta fixed-income ETFs.

Ownership was aggregated from quarterly 13F filings, which the SEC requires of any investment manager holding more than $100 million in assets. These may include pensions, banks, RIAs, wealth managers, broker-dealers and insurers. Generally, however, they don't include individual investors or smaller advisories.

In each segment, we concentrated on the largest funds, so as to minimize the impact newness or that illiquidity might have on the results; after all, it's common to see smaller and/or newer funds owned primarily by one or two big names.

All the funds examined have accrued significant assets, from $195 million up to $29 billion. Furthermore, all but one fund have average daily volumes in excess of $1 million and have traded for three or more years.

The Most Broadly Popular

Due to first-mover advantage, one might expect broad-based equity smart-beta ETFs to be popular with the widest set of investors. The numbers do indeed bear that out.

Consider the three largest smart-beta U.S. equity funds: the iShares Russell 1000 Growth ETF (IWF | A-91), the iShares Russell 1000 Value ETF (IWD A-89) and the Vanguard Growth ETF (VUG | A-92):

IWF = $28.92 Bn in AUM

Name % Ownership
Strategic Advisers, Inc. 5.0
Managed Account Advisors LLC 4.1
Merrill Lynch, Pierce, Fenner & Smith, Inc. 4.0
Bank of America, NA (Private Banking) 3.9
Morgan Stanley Smith Barney LLC 3.0
Edward D. Jones & Co. LP (Investment Management) 2.7
Goldman Sachs & Co. (Private Banking) 2.5
Raymond James & Associates, Inc. (Invt Mgmt) 2.0
UBS Financial Services, Inc. 2.0
LPL Financial LLC 1.8
Total number of filers 709
Total percent ownership 66.20%

IWD = $25.52 Bn in AUM

Name % Ownership
Edelman Financial Services LLC 6.7
Strategic Advisers, Inc. 5.9
Edward D. Jones & Co. LP (Investment Management) 4.4
Managed Account Advisors LLC 3.9
Merrill Lynch, Pierce, Fenner & Smith, Inc. 3.6
Goldman Sachs & Co. (Private Banking) 2.6
Morgan Stanley Smith Barney LLC 2.2
Raymond James & Associates, Inc. (Invt Mgmt) 2.1
Bank of America, NA (Private Banking) 2
American Century Investment Management, Inc. 1.9
Total number of filers 605
Total percent ownership 69.10%

VUG = $19.96 Bn in AUM

Name % Ownership
Managed Account Advisors LLC 10
Merrill Lynch, Pierce, Fenner & Smith, Inc. 6.5
Edelman Financial Services LLC 5.5
Edward D. Jones & Co. LP (Investment Management) 4.5
UBS Financial Services, Inc. 3.5
Morgan Stanley Smith Barney LLC 3.3
Strategic Advisers, Inc. 2.5
Amerivest Investment Management LLC 2.4
Envestnet Asset Management, Inc. 2.2
LPL Financial LLC 1.5
Total number of filers 445
Total percent ownership 63.40%

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