Investors should also look under the hood of any investment before committing to an ETF. Looking at smart-beta ETFs, the investments may lean toward specific sectors. Additionally, some smart-beta ETFs can overweight mid- and small-cap stocks with a value tilt.
“We’re talking about a motley group of strategies,” Ben Johnson, director of passive funds research at Morningstar, said in the CNBC article. “It’s important that investors understand the diverse number of processes.”
Like any other investment, smart-beta ETFs can underperform in certain markets. Consequently, investors should have an investment strategy in place to navigate the changing conditions. For instance, at ETF Trends, we like to use the 200-day exponential moving average to help us decide when we are in or out of a position. [An ETF Trend-Following Plan for All Seasons]
For more information on smart-beta funds, visit our indexing category.