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Hottest Smart Beta ETFs This Year

Cinthia Murphy

Smart beta is a very broad category, comprising some 800 different ETFs that set out to offer investors alternatives to the market-cap view of the world.

So far this year, these funds have attracted nearly $40 billion in assets under management (AUM), according to FactSet data.

We take a look at some of the most popular smart-beta ETFs this year.

Popularity Winner

The Vanguard Value Index Fund (VTV) is the most popular smart-beta ETF so far this year, seeing net inflows of $3.43 billion year-to-date.

The fund is the second-largest value ETF on the market today, with $32 billion in total AUM, behind only the $37 billion iShares Russell 1000 Value ETF (IWD), which has seen net creations of about $644 million so far in 2017.

The fund tracks an index from CRSP that relies on five different value metrics to evaluation components. VTV’s big upper hand over IWD is its price tag: 0.06% in expense ratio versus IWD’s 0.20%—that’s less than a third of the cost.

What’s amazing about VTV’s asset haul so far this year is that, first of all, no other smart-beta ETF has come even close to that asset gain. Secondly, value as a risk factor hasn’t really been performing that well in 2017. In fact, value has underperformed the broad market as well as growth, as the chart below plotting VTV against VOO and VUG shows. 

 

 

Perhaps VTV’s impressive asset haul is a testament to something that’s often said in investing circles: Value investors are patient investors, as they know capturing value takes time.

 

Next-Most-Popular Value ETFs

Vanguard Small Cap Value Index Fund (VBR)

This ETF has net creations so far this year of $954 million. It also tracks a CRSP index that looks at five value metrics to select and weight stocks. Combine that with its small-cap status, and you’ve got a multifactor approach to value investing. The fund has $11.1 billion in AUM and an expense ratio of 0.07%.

iShares Core S&P U.S. Value ETF (IUSV)

This fund has year-to-date net creations of $816 million. IUSV is part of iShares’ low-cost Core lineup of funds—it has an expense ratio of only 0.05%, and $2.13 billion in AUM. The strategy looks at the three value factors in order to select and weight securities. 

 

Most Popular Growth ETFs

iShares S&P 500 Growth ETF (IVW)

IVW has net creations so far in 2017 of $1.14 billion. With $18 billion in AUM, it isn’t the only iShares growth ETF capturing assets this year. The firm’s iShares Core S&P U.S. Growth ETF (IUSG) has gathered a 2017 net so far of $945 million, boosting it to a $2.5 billion fund.

However, IVW is a veteran in the space, having come to market in 2000. It has a fundamental security selection methodology that looks at three growth metrics within the universe of the S&P 500. IVW has an expense ratio of 0.18%.

Vanguard Growth Index Fund (VUG)

This ETF has year-to-date net creations of $1.08 billion. It is a massive fund, with $27.7 billion in AUM, and a price tag that’s very competitive—just 0.06%. The fund looks at six growth metrics when picking stocks, and it’s also massively liquid and popular with long-term investors.

 

 

 

Most Popular Momentum ETF

iShares Edge MSCI USA Momentum Factor ETF (MTUM)

MTUM has net inflows so far in 2017 of $845 million. It is a relatively young fund, having come to market in 2013. This year, no other momentum ETF has come even close in terms of asset gathering.

With $3.1 billion in total assets, MTUM looks for stocks that are showing a smooth and positive trend line. The fund selects and weights securities by looking at both six- and 12-month holding-period returns, scaled by the volatility of returns over the past three years. It carries an expense ratio of 0.15%. 

 

 

Most Popular Fundamental ETFs

Schwab Fundamental US Large Co. Index ETF (FNDX)

This fund has year-to-date net inflows of $774 million. It relies on various fundamental screens to pick and weight securities from the Russell 3000 universe with the goal of investing in companies not by market cap, but by aspects such as sales, cash flow, dividends and buybacks. FNDX has $2.7 billion in total assets. It’s not one of the cheapest in this segment, with an expense ratio of 0.25%.

Schwab Fundamental International Large Co. Index ETF (FNDF)

FNDF has net inflows so far in 2017 of $729 million. It is essentially the international version of FNDX. The fund picks stocks based on fundamental metrics in developed markets ex-U.S. It has $2.5 billion in assets and it too carries an expense ratio of 0.25%. 

 

 

 

Most Popular Multifactor ETFs

First Trust Nasdaq Bank ETF (FTXO)

This ETF has year-to-date net creations of $1.00 billion. It isn’t the first ETF you think of when you think of multifactor funds. But that goes to show just how diverse the smart-beta segment is, and just how broad its reach is within equity funds.

In the case of FTXO, which is a banking ETF, the fund picks stocks based on liquidity and weights them based on several factors including volatility, value and growth—hence, its multifactor makeup. FTXO is still a newcomer to the space, having launched in September 2016. It has an expense ratio of 0.60%.

Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC)

GSLC has net creations so far in 2017 of $721 million. It is one of the most popular multifactor ETFs on the market today, with $2.26 billion in assets gathered in less than two years.

The fund is a truly multifactor approach to the U.S. large-cap space, tracking an index that comprises value, quality, momentum and low-volatility factors, each equal-weighted in the final mix. What’s also unique about this ETF is how cheap it is for a multifactor fund. Its expense ratio is just 0.09%. 

 

 

Most Popular Dividend ETF

iShares International Select Dividend ETF (IDV)

This fund has year-to-date net inflows of $769 million. It is a classic dividend fund, tracking a dividend-weighted index of 100 of the highest-yielding securities found in developed markets outside the U.S.

IDV essentially selects stocks based on their dividends and weights them by their dividends in a tiered system. The U.K. and Australia are the fund’s biggest country allocations. This ETF has $4.35 billion in AUM and has an expense ratio of 0.50%. 

 

Charts courtesy of StockCharts.com

Contact Cinthia Murphy at cmurphy@etf.com

 

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