Investors who are looking to diversify their portfolios with smart beta exchange traded funds should also take the time to fully understand how the investment strategies work.
Tony Davidow, Asset Allocation Strategist for Schwab Center for Financial Research, pointed out that over the years, many investors, clients and investors have come up to Charles Schwab and asked the same questions when looking to diversify into smart beta strategies.
“I get the same questions over and over again, and I thought it’d be good to memorialize the questions and the responses,” Davidow said at Inside ETFs 2019.
Specifically, in a research note, titled Ten Things Everyone Should Know About Smart Beta Strategies, Davidow helped answer common questions such as: What are smart beta strategies? Are they active or passive? How are smart beta strategies different from market-cap strategies? How should investors incorporate fundamental index strategies in their portfolios? How can investors distinguish among myriad smart beta strategies? Recently there have been a number of new strategies that refer to themselves as “factor strategies,” do all smart beta strategies employ factors? Are all smart beta strategies really smart? Why does the Schwab center for Financial Research favor Fundamental Index strategies? Why have Fundamental Index strategies lagged their equivalent market-cap benchmarks recently? Lastly, is now the right time for Fundamental Index strategies?
“We believe smart beta strategies represent an evolutionary step forward in indexing. As we’ve pointed out, however, not all strategies are created equal. We encourage investors to take the time to understand the type of strategy they are considering for an investment. Spend the time in advance to avoid surprises in the future,” Davidow said in the research note.
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