BlackRock Joins the Fixed Income Smart Beta Party

Opportunity Cost Model

Sapient institutional investors such as endowments, pensions and sovereign funds are seeking more products to meet their complex needs. Traditional weighting of indices and investment fees are major drivers. Plain vanilla equity products are facing outflows with sophisticated asset owners. For example, mega asset managers in the camp of Baltimore-based T. Rowe Price Group have been plagued by significant outflows, caused by investors reducing active U.S. equity exposure. Asset owners are wrestling with migrating more assets away from relatively expensive, underperforming active strategies. In addition, a growing group of institutional investors are seeking passive strategies, while willing to pay more for private equity and real estate funds.


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Asset owners are wrestling with migrating more assets away from relatively expensive, underperforming active strategies.

Focusing on the fixed income asset class, factor-weighted products gained little ground with investors compared to their smart beta equity counterpart. According to a 2014 SWFI survey on smart beta, among the public institutional investors surveyed, 67% claim to already have smart beta allocations or are currently in the evaluation process. Of the sovereign wealth funds in the sample, 37% say that they have allocations, while another 25% say that they are currently evaluating a smart beta strategy.

BlackRock Joins the Party

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