Question

Smart Beta ETF's are a growing segment of the fund industry. They are a hybrid between active and passive, generally have a large amount of holdings, and weight the holdings on other factors besides the traditional market cap or equal weight models. Essentially they are active factor betters. They bet on factors that academics have found value in, such as tilting toward value and small-cap (Fama French Model). Please share your thought about the merits of this.

Answer 1

Smart beta ETFs are a value based portfolio investment approach where the stocks are selected only after they exhibit a certain criteria. The aim of smart beta ETFs is to beat the index and at the same time replicate it a little bit.

Smart beta ETFs are a blend of both active as well as passive investing as it tries to beat the return of the index and benchmark by taking lesser risk which is what an active portfolio manager looks for, And It also tries to replicate the index and do not change it's portfolio top often unless the Stocks meet certain fundamental criteria.

At this changing modern times, these are the funds investors will always look for, as it is a highly motivated portfolio management strategy which is aimed at exploiting the investing anomalies that are known for always beating the return of the benchmark indices, so both active as well as passive investors prefer it as it seems to represent both the characteristics.