Category Investments

Best kept secret, investment gems: will the Smart Money keep flowing into Smart Beta products?

09 September 2021 Loftie Botha, Portfolio Manager at Momentum Investments

• Smart Beta funds are growing assets at 31% vs 11% growth of the overall general equity category
• As these funds become more established and garner longer track records, so more investors will come to trust them

Market cap weighted index funds are widely used in South Africa, but a lesser-heard-of peer, Smart Beta funds, have recently showed impressive asset growth – potentially making this the next fund category to watch.

But what are Smart Beta funds? Smart Beta investing is an investment approach in which decisions are based on objective data, rather than on subjective opinions. Smart Beta portfolio managers rely more on quantitative techniques than on fundamental analysis. A Smart Beta portfolio may follow a single style such as momentum, value or quality, or it may be diversified over a combination of styles, where it would be referred to as a multi factor portfolio.

A few interesting trends come to the fore if Morningstar figures on the General Equity Unit Trust category are analysed.

• Of the R380.5bn invested assets by the end of June 2021, only R15.2bn was invested in Smart Beta funds.
• The growth trajectory of these funds makes it clear that powerful forces are at play – while the General Equity category grew assets by 11% p.a., the Smart Beta segment grew assets by 31% p.a. in the past decade.
• Its market share expanded from 1.3% to an impressive 4.0%, and the number of funds increased from 5 to 25 over the same period.

Looking at these numbers , the global trend of exponential Smart Beta growth is firmly in place in the local market, albeit from a low base.

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As National Treasury mulls a two-bucket retirement system, mandatory contributions and preservation, regulation 28 is being amended to allow up to 40% of retirement fund assets to be invested in SA-based infrastructure… Which of the following retirement fund ‘tweaks’ would you consider most beneficial to your clients?


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