Morningstar Publishes Second Annual Global Guide to Strategic-Beta Exchange-Traded Products; Finds Faster Growth, Increased Complexity Because of Product Proliferation

London - 1 October 2015

At its sixth annual ETF Conference in Chicago, Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, published “A Global Guide to Strategic-Beta Exchange-Traded Products,” its second annual global landscape report about trends in strategic-beta exchange-traded products (ETPs).

Morningstar defines strategic beta as a class of investment products that track indexes that seek to either improve performance or alter the level of risk relative to a standard benchmark, representing a fast-growing middle ground on the active-to-passive investment spectrum.

“The strategic-beta landscape is growing faster than both the broader ETP market as well as the global asset management industry, driven by new inflows, new product launches, and the entrance of new providers during the past year. Benchmarks underlying new products are more complex as well,” Ben Johnson, Morningstar’s director of global exchange-traded funds research, said. “As strategic-beta strategies continue to proliferate and become increasingly nuanced, investors’ due-diligence burden is growing commensurately.”

Morningstar’s global report provides an update on the state of the strategic-beta ETP landscape, examining trends in growth, asset flows, product development, and fees. Key highlights include:

  • The number of strategic-beta ETPs in Morningstar’s database rose from 673 to 844, from June 30, 2014 to June 30, 2015. Worldwide assets rose from $396 billion to $497 billion during the same time period.
  • Strategic-beta ETPs account for 21.2 percent of U.S. ETP assets, which is the largest strategic-beta ETP market, and 2.9 percent of ETP assets in the Asia-Pacific region, the smallest market, compared with 19 and 1.5 percent, respectively, a year ago.
  • Dividend screened/weighted ETPs are again the most popular among strategic-beta ETPs by assets in all regions examined in the report except for the Asia-Pacific region. Quality strategies are the
  • largest subset of strategic-beta ETPs in the Asia-Pacific region, representing $3.8 billion and 55.4 percent of total assets in strategic-beta ETPs as of June 30, 2015.
  • There is a positive relationship between the adoption of strategic-beta ETPs and the stage of development of a region’s ETP market as well as its asset management and financial services industries at large. For example, the United States has the second-oldest ETP market in the world, holding 52 percent of strategic-beta ETPs, which account for nearly 91 percent of total assets in the global strategic-beta ETP landscape.

Additional takeaways by country and region include:

  • United States: The top 10 strategic-beta ETPs by assets account for approximately 42 percent of the United States’ strategic-beta ETP market. iShares and Vanguard account for 16.5 percent of the total number of strategic-beta ETPs, holding 57.4 percent of assets in the United States.
  • Canada: The number of strategic-beta ETPs rose from 88 as of June 30, 2014 to 124 as of June 30, 2015. In the same period, assets rose nearly 7 percent from $7.4 billion to $7.9 billion.
  • Europe: Assets under management in strategic-beta ETPs rose by 18.6 percent in the last 12 months to $32.1 billion as of June 30, 2015. Strategic-beta ETPs’ share of the broader European ETP market expanded from 5.7 percent to 6.3 percent in the same period.
  • Asia-Pacific: Strategic-beta ETP assets in Japan rose the most in the last year—318 percent—followed by South Korea’s market, which rose 53 percent. Total assets in the region increased 103 percent, from $3.4 billion to $6.9 billion from June 30, 2014 to June 30, 2015.
  • Emerging Markets: South Africa and Brazil are the main emerging markets in the strategic-beta ETP landscape. Neither market saw strategic-beta ETP launches in the last year. The single strategic-beta ETP in Brazil saw its assets under management decline by 50 percent from June 30, 2014 to June 30, 2015.

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