Smart-beta or alternative index-based exchange traded fund (ETF) strategies have quickly gained traction among financial advisors and investors seeking to enhance portfolio returns or smooth out their investment ride.
On a complimentary webcast this Thursday, How Smart Beta is Getting Smarter and Why Advisors Should Pay Attention, Eric Shirbini, Global Product Specialist at ERI Scientific Beta, Joe Smith, Senior Market Strategist at, CLS Investments, and Mike Cameron, Head of Institutional Sales of ETF Securities, look at the smart-beta landscape and help outline better investment opportunities through alternative index-based investments.
ETF Securities sees the industry is evolving with smart-beta “2.0” indices as money managers and fund companies try to enhance broad exposure.
In the beginning, investors have relied on market cap-weighted indices for their passive investment needs. However, these traditional beta indices were not designed to maximize investment risk versus returns. Instead, some observers argued that market cap-weighted indices may overexpose investors to outperforming stocks since these are the same companies that have seen their market cap grow.
After a while, smart-beta “1.0” indices came along to provide superior risk-adjusted performances, but they may have shown a tilt toward unrewarded risk factors and lack of diversification.
[related_stories]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.
For instance, ETF Securities has partnered with ERI Scientific Beta on the relatively new ETFS Diversified-Factor U.S. Large Cap Index Fund (NYSEArca: SBUS) and ETFS Diversified-Factor Developed Europe Index Fund (NYSEArca: SBEU).
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. 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 investing in smart-beta ETF strategies can register for the Thursday, May 5 webcast here.