Smart Beta ETFs Grow, Gain Naysayers

There is no denying the asset-gathering acumen of alternative-indexed or smart beta exchange traded funds.

There were 335 such ETFs with nearly $300 billion in combined assets under management at the end of 2013. Smart beta ETFs “contributed a record $65.1bn of inflows in 2013 led by dividend-weighted funds, and nearly doubled the $34.2bn from last year,” said BlackRock. [Flows Show Investors Favoring Smart Beta ETFs]

Along with the increased inflows to intelligent index ETFs have come an increased amount of critics.

“Now, on the heels of success, come analyst concerns. Some critics contend that smart beta funds often deliver less than promised, may not efficiently track their indexes and have liquidity issues,” reports Aparna Narayanan for Investor’s Business Daily.

As IBD notes, Morningstar has opted for the term “strategic beta,” which makes sense as many issuers of these non-cap weighted ETFs are doing just that: Applying an element of strategy to passive management that is usually absent from traditional cap-weighted offerings.

Despite the debate over what to call these ETFs, what cannot be assailed is their increasing prominence in the ETF universe. Institutional investors are increasing their adoption of alternatively weighted or factor-based exchange traded funds, according to a survey released by Russell Investment’s in April. [Russell Says More Institutions Using Smart Beta ETFs]