As we’ve discussed previously, smart beta approaches, such as WisdomTree’s, have been growing in popularity. Perhaps this is due to the fact that they try to beat the market, rather than be it. But all smart beta approaches may not be created equal. We believe that truly smart beta approaches (as opposed to smart marketing techniques) offer investors:
• High correlations to established benchmarks
• A rules-based, repeatable methodology that offers broad, representative exposure to an asset class
• Alternative weighting methods
• A proven track record on a total and risk-adjusted return basis
And perhaps one of the most important characteristics, at least in our approaches, is the regular rebalancing back to a relative value. Why is this so important?
Rebalancing keeps an eye on relative value
Consider that stock prices can be driven up for many reasons. And when prices are driven up, ETF weightings can be as well. Unless you believe that price is always the best indicator of value, you can appreciate the risks this can add. This is precisely why a fundamental rebalance is so important to WisdomTree—and should be to all investors.