Unlocking the Potential of Smart Beta ETFs

Smart beta ETFs can be used for a diversified investment strategy but those finding it too complicated may consult an advisor before opting for them

In the latest episode of the “Investment Made Easy” webinar series, Outlook Money, in collaboration with ICICI Prudential Asset Management Ltd, delved into decoding smart beta exchangetraded funds (ETFs). The participants in the webinar were Chintan Haria, Principal Investment Strategist at ICICI Prudential AMC, and Nilesh D. Naik, Head Of Investment Products, Share.Market (PhonePe Wealth). The session was hosted by Versha Jain from Outlook Money.

Smart Beta ETFs, a relatively new concept in India, aim to outperform the traditional marketcap-weighted indices, while avoiding the fees of an active fund manager, said Haria, while demystifying these products. He highlighted how they select stocks by assigning weights according to specific factors like low volatility, momentum, value, or quality, rather than considering only market capitalization. This approach allows investors to target specific investment outcomes and diversification benefits.

Naik talked about the diversity of factors that can underpin smart beta strategies. He highlighted that there were hundreds of potential factors used globally, and not just momentum and value. He, however, added that only a handful, including size, yield, and growth, have proven to be genuinely impactful for investment strategies. This selectivity underscores the importance of meaningful economic rationale behind factor choices, he said.

When considering single versus multifactor ETFs, Haria advocated for strategic selection based on the investor’s risk-return profile. Combining factors such as low volatility with momentum can offer a balanced approach, aligning with an investor’s specific financial goals and risk tolerance.

Addressing the accessibility and suitability of smart beta ETFs, the experts concurred that these funds offer a compelling option for a broad range of investors, from novices to seasoned market participants. They emphasized the importance of having a long-term investment horizon and consulting financial advisors to navigate the complexities of the market effectively.

Both speakers stressed the need for investor education and professional advice in making informed decisions. With the financial landscape continuously evolving, leveraging expert guidance can demystify investment strategies like investment in smart beta ETFs, they said.

Conclusion

The webinar concluded with a call to action for investors to explore smart beta ETFs as part of a diversified investment strategy.