“Sadly for everyone, 2017 is over and volatility is increasing. 2017 was not the norm, and many would consider the year an anomaly. The market usually behaves like 2015, 2016 and the beginning of 2018. The current environment we believe favors strategic beta over market-cap oriented beta,” Martin added.

Martin explained that investors whom rely on traditional market cap-weighted index funds may be exposed to greater concentration risks. While these cap-weighted strategies have worked in the past, the rising volatility could cause investors in these traditional plays to be exposed the risk of top performing companies suddenly making an about-face.

Alternatively, Mark Burns, Smart Beta Product Specialist for Rothschild Risk Based Investments, advised investors to take a risk-oriented approach or a low-volatility strategy to hedge against potential risks associated with a traditional cap-weighted indexing approach in more volatile market conditions.

“The simple reason for why a risk-oriented approach now is that risks are beginning to emerge in the marketplace that have been dormant for some time,” Burns said.

To help diminish risk exposure, investors can look to strategic beta or alternative index-based strategies like the Nationwide Risk-Based U.S. Equity ETF (NYSEArca: RBUS) or Nationwide Risk-Based International Equity ETF (NYSEArca: RBIN).

The Risk-Based U.S. Equity ETF will try to reflect the performance of the R Risk-Based US Index, a rules-based, equal risk-weighted index designed to provide exposure to U.S. large-cap companies with lower volatility, reduced maximum drawdown and improved Sharpe ratio, compared to a traditional market cap-weighted index. The ETFs hand use a risk based approach that begins with a line-by-line analysis of the risk contribution of each constituent and selects the lowest risk stocks.

“An approach like the Nationwide Risk-Based ETFs allow investors to potentially moderate some of the risks inherent with traditional market cap weighted strategies, while providing exposure to large cap US and International securities. And because the strategies are available in an ETFs structure they can be easily implemented into most portfolios,” Burns said.

Financial advisors who are interested in learning more about smart beta strategies can watch the webcast here on demand.