Escape the Mega Cap ETF Trap: The Benefit of Redistributing Risk

By J.P. Morgan Asset Management via

The investment industry is abuzz with talk of strategic—or smart—beta, as investors become increasingly aware of the overexposure to risk concentrations and overvalued securities that comes as part of the package with market cap-weighted ETFs.

By redistributing risk weightings and filtering stocks based on a combination of different investment factors, investors can benefit from potentially smoother returns.

Traditional cap-weighted indices allow market capitalization to dictate their sector and regional allocations. This means they are most exposed to sectors and regions that have performed well in the past, not those that will necessarily perform well in the future.

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