Smart-beta, or strategic-beta, indexing strategies are an up-and-coming theme in the exchange traded fund space. However, the majority of retail investors don’t know anything about smart-beta, revealing the greater need for education for the quickly evolving industry.
Ben Johnson, Morningstar’s director of passive funds research, points out that there were 374 exchange traded products that track strategic-beta strategies, with about $360 billion in assets, as of June 30, reports Joseph Lisanti for Financial Planning.
However, according to Charles Schwab research, 67% of its clients admit that they do not know anything about smart-beta ETFs. On a recent Russell Investments survey, institutional investors revealed that about one-third of the group already use smart beta strategies.
“We need more clarity, more education,” Rolf Agather, who heads up research at Russell Investments, said.
Looking at smart-beta strategies, the varying ETF offerings share a single common theme: they avoid the capitalization weighting methodology common to traditional indices.
Smart beta portfolios “are breaking the link between price and portfolio weight,” John West, head of client strategies at fundamental index shop Research Affiliates, said in the article.
Luciano Siracusano, chief investment strategist at WisdomTree, explains that the smart-beta ETFs provide targeted exposure “weight by what you want.”