Money managers are jumping on the smart-beta exchange traded fund bandwagon as more investors shift into alternative index-based strategies.
More are increasingly investing in smart-beta ETFs that try to boost returns or manage market risk as opposed to traditional market capitalization-weighted beta-index funds, writes Trevor Hunnicutt for InvestmentNews.
Smart-beta ETFs are based on indices that track specific rules or adhere to pre-described factors like low volatility, valuations and price momentum, among others, emulating actively managed styles in a passive ETF wrapper. In contrast, traditional market-cap weighted ETFs allocate a larger tilt toward bigger companies with a higher valuation.
Now, about $1 of every $5 is moving into smart- or strategic-beta ETFs, according to Morningstar data. There are 1,667 U.S.-listed ETFs on the market with $2.0 trillion in assets under management, and there are 430 enhanced ETF strategies that do not follow traditional beta-indexing styles with $212.3 billion in assets, according to XTF data. [Smart-Beta ETFs Are Attracting Heavy-Weight Investors]
Jumping on the quick expansion in the smart-beta ETF space, J.P. Morgan, PIMCO and even exchange operator Nasdaq OMX Group (NasdaqGS: NDAQ) have shown interest in alternative indexed-based ETFs.
PIMCO is partnering with Research Affiliates to bring out seven new equities-based ETFs through a new line of PIMCO Fundamental IndexPLUS AR products. For instance, PIMCO already announced new offerings back in August last year, including the PIMCO Fundamental IndexPLUS AR Active ETF and the PIMCO International Fundamental IndexPLUS AR Strategy Active ETF. [PIMCO to Shutter Four ETFs, Add Three New Funds]
Meanwhile, J.P. Morgan Asset Management is also expanding its suite of strategic beta ETFs, launching the JPMorgan Diversified Return Emerging Markets Equity ETF (NYSEArca: JPEM) Thursday. [J.P. Morgan’s New EM ETF Challenges Conventional Rivals]
Earlier, Nasdaq acquired Dorsey Wright & Associates, an investment advisory firm that specializes on smart-beta indices, for $225 million in cash and debt, which suggests that the exchange operator is also interested in the quickly growing smart-beta indexing space. [Nasdaq Boosts Index Business With Dorsey Wright Acquisition]
For more information on the indexing methodologies, visit our indexing category.
Max Chen contributed to this article.