INTRODUCTION
Smart Beta may be one of those financial terms that raises the ire of some market participants, but its success in spawning a new class of exchange traded funds (ETFs) is indisputable.
According to ETF provider Invesco Powershares, from 2010 to 2015, Smart Beta ETFs took in more than 21% of U.S. equity ETF inflows, representing 12% of total ETF industry assets. Market researcher Market Strategies International noted in a January 2016 survey that 45% of all institutional decision-makers expect to allocate more assets to Smart Beta funds in future. (Related: Building a Better Mousetrap with Smart Beta ETFs and What is the Difference between an Index Fund and a Smart Beta Fund?)
Smart Beta strategies currently underpin about 20% of ETFs globally with an estimated $400 billion under management. In May 2016, Blackrock's iShares unit – the world's largest manager of ETFs – projected that Smart Beta ETF assets globally would grow by 19% annually to reach $1 trillion by 2020 and $2.4 trillion by 2025.
Exhibits 1 and 2, from a Morningstar report, show the growth in Strategic Beta exchange-traded product (ETP) assets for the U.S. and their share of the overall U.S. ETP market respectively (Morningstar prefers to use the term Strategic Beta in place of Smart Beta). Morningstar estimated that in June 2015, the U.S. had $450 billion in Strategic Beta ETP assets, accounting for 90.5% of the $497-billion global market for these assets.
Exhibit 1:
Exhibit 2:
But what exactly is Smart Beta? To understand the term and its significance, we first have to delve into the arcane world of alpha and beta.
Smart Beta Groundwork: What is meant by Alpha and Beta?
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Investing
Advisors Are Increasing Smart Beta Use
Advisors in major ETF markets are boosting smart beta use, but issues remain. -
Financial Advisor
Smart Beta ETFs: Popular but Advisors Are Wary
Smart beta ETFs are exploding in popularity among investors, but many financial advisors remain skeptical of them. -
Financial Advisor
Smart Beta ETFs: Understanding the Risks
Smart Beta ETFs have grown in popularity in recent years. These are the risks that advisors and their clients need to understand. -
Investing
How Advisors Are Using Smart Beta ETFs
Advisers and money managers are using smart beta ETFs in a variety of ways, which should foster more growth for these funds. -
Financial Advisor
Smart Beta: Set Up for a Fall?
A large number of investors have climbed onto the smart beta bandwagon but some believe these strategies are set up for a fall. Here's why. -
Investing
Tips for Finding The Best Smart Beta ETFs
Focus on fees and transparency, among other factors, when evaluating smart beta ETFs. -
Investing
Survey Confirms Smart Beta Growth Trajectory
A new survey confirms the growth potential of smart beta and ESG ETFs. -
Investing
What You Should Know About Smart Beta ETFs
What you need to know about smart beta ETFs and the strategies behind them. -
Financial Advisor
Are Smart Beta ETFs Active, Passive or Both?
Are smart beta ETFs a form of passive management, active management or a hybrid of both?