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In the European market, investors in factor ETFs have experienced relative calm during the past spring. Despite the turbulence in other sectors, the smart beta segment has maintained a steady course.
Smart beta, defined by Stefan Kuhn, head of the ETF division at SPDR from State Street Global Advisors, as anything that doesn't target traditional market capitalization weightings, has gained a significant foothold in the market. Multifactor approaches, which bundle several strategies, come in third with over 11% of the assets in the European market. This trend is reflected in the market share of providers such as iShares, the largest with a 45% share, and Amundi, the second-largest after acquiring Lyxor with a 12% share.
Products bundled under the label of smart beta ETFs can vary, with popular categories including those focused on quality, momentum, dividend selection, and factor-based systematic strategies. However, these categories have recently experienced net outflows rather than inflows, with smart beta ETFs in Europe experiencing net outflows of -$2.9 billion as of June 2025.
Dividend-focused smart beta ETFs, such as the First Trust STOXX European Select Dividend ETF (FDD), remain popular. FDD has shown a 39.57% gain year-to-date and a concentrated portfolio of around 33 holdings. Factor-based smart beta strategies, including momentum and quality factors, also remain significant. ETFs tracking MSCI Europe Quality indices are noted as specialized smart beta products in this region.
Despite the recent outflows, risk-minimizing strategies follow with 17% of the assets in the European market for strategy ETFs. Value ETFs are close behind at 7%. Interestingly, dividend strategies, though not classic factor ETFs, are considered smart beta products by SPDR because they don't simply weight by market capitalization.
The European market for strategy ETFs is relatively small, with 88% of funds invested in products designed for the US market. However, the MSCI World strategy index declined less sharply in March compared to its standard counterpart for factor ETFs, indicating a potential resilience in the smart beta segment.
Morningstar includes dividend ETFs in the smart beta category. At SPDR, products that fall into the categories of substance, low market risk, and dividends are considered smart beta. Many other providers in the market have adopted this definition of smart beta.
In conclusion, while popular smart beta categories in Europe include quality, momentum, and dividend factors, they currently hold a smaller or declining share compared to core equity and thematic ETFs. The exact overall European smart beta ETF asset percentages are not available, but the net outflow figure suggests a contraction of around $2.9 billion in smart beta ETF assets in mid-2025. The market continues to evolve, and the future of smart beta ETFs in Europe remains an interesting area to watch.
Personal finance investors might find solace in the relatively stable smart beta segment of the European market, even as factor ETF assets overall experience net outflows of -$2.9 billion as of June 2025. Dividend strategies, although not classical factor ETFs, are considered smart beta products by SPDR, presenting an appealing option for those seeking risk-minimizing strategies.
