Who's Really Using Smart Beta Funds

April 04, 2016

Ownership in these funds is well-distributed across large firms. With the exception of VUG, the top 10 investors in each ETF account hold percentages in the single digits. Plus, though hundreds of large money managers invest in each fund, they only represent two-thirds of total ownership. The remaining stake is held by smaller investors who don't have to file 13Fs.

Even VUG—the most concentrated fund, with 16.5% being held by either Merrill Lynch's Managed Account Advisors or Merrill Lynch directly—is fairly well distributed across its investor base.

A similar picture emerges for the three largest smart-beta international equity funds: the WisdomTree Europe Hedged Equity ETF (HEDJ | B-47), the WisdomTree Japan Hedged Equity ETF (DXJ | B-66) and the iShares MSCI EAFE Minimum Volatility ETF (EFAV | A-70):

HEDJ = $14.76B in AUM

Name % Ownership
Morgan Stanley Smith Barney LLC 4.8
UBS Financial Services, Inc. 4.8
Managed Account Advisors LLC 4.3
Goldman Sachs & Co. (Private Banking) 4.2
Merrill Lynch, Pierce, Fenner & Smith, Inc. 4.1
Bank of America, NA (Private Banking) 3.7
Bessemer Investment Management LLC 3.4
RiverFront Investment Group LLC 2.3
Strategic Advisers, Inc. 1.9
AFP Integra SA (Investment Management) 1.9
Total number of filers 443
Total percent ownership 63.20%

DXJ = $10.85 Bn In AUM

Name % Ownership
Morgan Stanley Smith Barney LLC 6.8
JPMorgan Investment Management, Inc. 5.2
Merrill Lynch, Pierce, Fenner & Smith, Inc. 5.1
Goldman Sachs & Co. (Private Banking) 4.6
Bank of America, NA (Private Banking) 3.8
Managed Account Advisors LLC 3.3
Windhaven Investment Management, Inc. 2.9
Bessemer Investment Management LLC 2.8
UBS Financial Services, Inc. 2.3
SSgA Funds Management, Inc. 1.9
Total number of filers 440
Total percent ownership 76.40%

EFAV = $5.57B in AUM

Name % Ownership
BlackRock Fund Advisors 5.4
Bank of America, NA (Private Banking) 4.6
Morgan Stanley Smith Barney LLC 2.9
BlackRock Asset Management Canada Ltd. 2.8
Merrill Lynch, Pierce, Fenner & Smith, Inc. 2.5
Wells Fargo Advisors LLC 2.2
UBS Financial Services, Inc. 2.1
LPL Financial LLC 1.9
Sage Advisory Services Ltd. Co. 1.9
Columbia Management Investment Advisers LLC 1.7
Total number of filers 216
Total percent ownership 52.60%

Again, the 10 largest investors hold only single-digit percentages of each fund. And hundreds of 13F filers invest in each fund, though a significant ownership stake—from just under half for EFAV to one-quarter for DXJ—is held by smaller investors.

It only makes sense that this space would be so well-colonized. Smart beta first evolved to slice and dice large-cap equities, and that's where most investor and media attention remains. The ownership picture gets cloudier outside this familiar ground, however.

Fewer Investors In Smart-Beta Sector ETFs

We also examined the five-largest smart-beta U.S. sector ETFs (as classified by ETF.com's ETF Finder), which included:

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