“Overall awareness of the Smart Beta ETF category is still in its infancy as institutional decision makers admit they only first heard about these products in the last few years,” Sixt said.
For many decision makers, rules-based or smart-beta ETFs are considered “hybrid” investment assets. The ETFs combine traditional passive indexing methodologies with additional rules that mimic actively managed styles.
Due to their factor-based styles, these smart-beta ETFs tend to generate outperformance, come with lower fees and diminish volatility, Sixt added. However, institutional players point to some drawbacks, including underperformance due to market timing, increased time spent on due diligence, lack of long-term track records and difficulty in comparing performance to traditional benchmarks. [An Impressive High Quality ETF]
“The need to reduce portfolio volatility and access higher beta strategies are driving smart beta usage among institutional decision makers,” Sixt said.
In a recent ETF Trends survey, the majority of financial advisors indicated that they are investing in smart-beta ETFs to generate better risk-adjusted returns.
Financial advisors who are interested in learning more about smart-beta ETFs can listen to the webcast here on demand.
CORRECTION: Market Strategies International