The Evolution of Smart Beta ETFs

Now, we are seeing a growth spurt in the ETF space as more smart-beta 2.0 index-based funds come out. These ETFs track multi-factor indexing methodologies that rely on multiple empirically rewarded factors and multi-weighting strategies to potentially diminish risk and enhance returns.

ETF Securities has partnered with ERI Scientific Beta on the new ETFs, including the ETFS Diversified-Factor U.S. Large Cap Index Fund (NYSEArca: SBUS) and ETFS Diversified-Factor Developed Europe Index Fund (NYSEArca: SBEU), which launched in January. Scientific Beta is an index provider specializing in smart beta solutions and is part of the EDHEC Risk Institute, an entity that works closely with institutions to implement academic research and improve their investment and risk management process has also recently came out with smart-beta ETFs of its own. [ETF Securities Expands Equity ETF Lineup With Two More New Funds]

The two ETFs’ selection process includes emphasizing investment factors, such as volatility, valuation, momentum and size.

Additionally, the ETFS Diversified-Factor U.S. Large Cap Index Fund and ETFS Diversified-Factor Developed Europe Index use a proprietary weighting strategy to provide well diversified exposure, by combining 5 models: Maximum Deconcentration, Maximum Decorrelation, Efficient Minimum Volatility, Efficient Maximum Sharpe Ratio, and Diversified Risk Weighted.

Financial advisors who are interested in learning more about alternative, smart-beta index ETFs can register for the Wednesday, November 18  webcast here.