The quickening expansion into smart beta is seen as an evolution away from traditional cap-weighted indexing methodologies to a next-gen approach to factor-based investments, according to Craig Lazarra, global head of index investment strategy for S&P Dow Jones Indices.
Nevertheless, Anthony Davidow, vice president and the alternative beta and asset allocation strategist at the Schwab Center for Financial Research, warned that smart-beta ETFs won’t always work as various market conditions could cause the strategies to underperform. For instance, while low-volatility ETFs may outperform broader markets during times of distress, an extended market rally could cause these more conservative low-vol strategies to underperform. [Low-Volatility ETFs Attract as Markets Tumble]
Joel Dickson, global head of investment research and development, and a principal in Vanguard’s Investment Strategy Group, also compared smart beta offerings to the “indexification of active management,” but he also warned that investors should still perform their due diligence as no two ETFs are alike.
“With so many different smart-beta products now available for investors to sort through, S&P Capital IQ thinks understanding what’s inside is particularly important,” Rosenbluth said. “Since ETFs track different indices, the exposures they provide, along with their returns will be different.”
Max Chen contributed to this article.