The Intelligence of Smart Beta

It is estimated that smart beta funds account for nearly $571 billion of the $4 trillion invested in the global ETF market, and that number continues to grow as firms are increasingly offering smart beta products. In her monthly column for South Florida Business and Wealth, WE Family Offices Partner Julie Neitzel first defines the goals of smart beta and then shares her insights on the merits of smart beta strategies within a portfolio.

“Financial product innovation continues for global investors, and 2017 has been a highly successful year for the continued launch of ‘smart beta’ investment products,” writes Neitzel.

For those investors who are not yet familiar with smart beta, Neitzel summaries the concept. “The ETF industry traditionally has been dominated by products based on market capitalization weighted indexes (‘beta’ products) that are designed to represent the broader market or a particular segment of the market. Smart beta indexes attempt to select stocks that might have better risk-return performance than the overall market by using various fundamental screens and factors such as sales, earnings, book value, dividends, cash flow and stock price volatility to create or improve on the traditional indices,” she explains. “The goal of applying these factors is to design a smart beta product that will outperform ‘simple beta’ market cap weighted funds, such as the S&P 500 ETF.”

Investors are drawn to smart beta ETS for their

Efficiency: It facilitates investing in thousands of stocks with a particular risk/return profile in a simpler and less-costly manner than through actively managed funds.

Different investment outcomes:Smart beta ETFs construct indexes based on certain traits or factors like volatility, quality, value, momentum and company size.

Investment costs: Fees for smart beta products are considerably lower than actively managed strategies and mutual funds but typically slightly higher than traditional ETFs.

Diversification: Smart beta ETFs can provide broader exposure to various sectors but also apply certain factors mentioned above.

Pre-specified risk/return attributes: Smart beta products create customizable risk/return for portions of a portfolio.

To learn more about smart beta, see the complete South Florida Business and Wealth article here.


This communication contains our current opinions and commentary, and does not represent a recommendation of any particular security, strategy, investment product or manager. The viewsexpressed here are subject to change without notice. This commentary is distributed for educational purposes only and should not be considered as investment advice or an offer of any security or service for sale. Information contained herein has been obtained from sources we believe to be reliable, but we do not guarantee its completeness or accuracy. No part of this letter may be reproduced in any form, or referred to in any other publication, without WE’s written permission.