Adviser Familiarity with Strategic Beta ETFs Overwhelmingly Low

While market volatility and geopolitical events are major concerns for advisers, a new study suggests most aren’t utilizing strategies that can address these issues, such as strategic beta.

A new survey by Hartford Funds suggests that strategic beta exchange-traded funds (ETF) are grossly underutilized by advisers, and the biggest factor pushing down engagement could be lack of familiarity with these products.

According to study, 72% of advisers don’t use strategic beta ETFs or have less than 10% of client portfolios invested in these solutions. Only 5% of advisers allocate more than 30%. Of the advisers not using strategic beta ETFs, 41% say it’s due to lack of familiarity. Only 14% of investors claim to be familiar.

The study concludes that although investors are most concerned with market volatility (36%) and geopolitical events (22%) affecting their investments, the majority aren’t incorporating products into their portfolios which can address these challenges and manage risk exposure. Hartford Funds argues that while most advisers (62%) are somewhat familiar with these products, most are not versed in them enough to meaningfully use them in client portfolios.

“As strategic beta ETFs proliferate the marketplace, advisers have an enormous opportunity to educate themselves and their clients about their potential advantages,” says Ted Lucas, head of systematic strategies and ETFs at Hartford Funds. “These investment products have the potential to help clients solve for specific objectives like growth, volatility and income—typically at a lower cost than traditional actively-managed mutual funds.”

However, the study also elicited adviser interest in strategic beta ETFs with 33% citing the potential to achieve index outperformance, and 30% citing diversification as the most attractive features of these products.

“Strategic beta ETFs provide advisers with an opportunity to help investors with the challenges in today’s low-growth and potentially volatile market environment looking forward,” adds Lucas. “While strategic beta usage has often been tactical to date, many multifactor strategic beta products were designed for core allocations and long-term investments.”

However, most advisers (72%) believe strategic beta to be a tactical investment tool as opposed to a strategic “core” investment tool (28%), the study found.

But as more strategic beta ETFs enter the market, it’s important to note that ETFs are generally a small part of the retirement space with many ETFs entering the defined contribution (DC) realm through target-date funds (TDF).

The Hartford Funds survey of 794 investors and 348 advisers was conducted both in-person and via phone throughout October and November 2016.