Investors are increasingly adopting smart- or strategic-beta ETFs as an alternative to traditional market capitalization-weighted index funds.
Smart-beta ETFs are considered a mix of both passive index-based offerings and actively managed styles. The enhanced, factor-based, smart-beta ETFs will passively track an underlying index. However, the underlying index implements actively managed strategies, such as focusing on low-volatility, momentum and value, among others.
Due to the different factor-based indexing methodologies, the nuanced differences in index construction can create different performance profiles among similar strategies. Consequently, investors should take the time to understand how efficiently a smart-beta fund’s underlying benchmark is at following targeted factors and whether other costs may be holding back performance. [Where Smart-Beta ETFs Fall On The Passive/Active Spectrum]
Financial advisors who are interested in learning more about smart-beta, fundamental indexing can register for the Wednesday, January 13 webcast here.