Smart beta gains ground
The majority of financial professionals are using smart beta strategies to replace actively managed funds, according to Vaneck’s third annual smart beta survey. It found that the key motivations for using a smart beta strategy is to achieve outperformance (64%), achieve better risk-adjusted returns (55%), reduce volatility (50%) and reduce costs (46%).
“Smart beta is giving active management a run for its money,” says Arian Neiron,
Vaneck’s managing director and head of Asia
Pacific. “For the first time since the survey launched in 2016, the majority of respondents are using smart beta strategies in their portfolios and they are using them as a replacement for active management strategies.”
So what exactly is smart beta?
“Where traditional market-capitalisation-weighted exchange traded funds consider that market size incorporates ‘all factors’, smart beta ETFs put more focus on some factors over others,” says Chris Brycki, from Stock spot. “Common smart beta factors include growth versus value, small cap versus large cap or fundamental factors like dividends.” There are a number of smart beta ETFs to choose from. Just make sure you understand exactly what the fund is investing in and whether the smart beta factors are cyclical.