Investing with Schwab's Robo-Advisor is a Play on Smart-Beta ETFs | Page 2 of 2 | ETF Trends

Investors have been receptive to the robo-advisory strategies, funneling $1.5 billion into the portfolios over the first six weeks after launch, with 20% of investors as new Schwab clients.

The addition of the smart-beta ETFs into the robo-advisory reflect the growing desire to diversify away from traditional market-capitalization-weighted indices. Schwab argues that a break away from the relationship between a stocks’ price and weighting in a portfolio impacts risk-adjusted returns over the long haul. For instance, the Russel Fundamental US Large Company Index has outperformed the standard Russel 1000 index by 62 basis points, with a slightly less volatile performance, since the fundamental index’s inception in February 2011.

Fundamental strategies provide the potential for alpha, and I think that’s where a lot of the appeal comes from,” Tony Davidow, vice-president at the Schwab Center for Financial Research, said in the article.

However, potential investors should be aware that smart-beta ETF strategies typically cost more than the traditional beta-index ETF. Schwab’s fundamental ETFs, though, are on the cheaper end of the spectrum, with expense ratios ranging from 0.32% to 0.48%. In contrast, U.S.-listed enhanced ETFs have an average expense ratio of 0.61%, according to XTF data.

For more information on smart beta funds, visit our smart beta category.

Max Chen contributed to this article.