Zacks Podcast Highlights: Are the Latest 'Smart Beta' Funds Better Choices for Investors?
For Immediate Release
Chicago, IL – Smart beta strategies are sweeping the ETF world, as seemingly every fund company or index provider is getting in on the game. But is this a better path for investors or just a trap? I investigate this smart beta craze with an indexing expert in this week’s Dutram Report in order to get some answers, listen to find out more! To listen to the podcast, click here: ( https://www.zacks.com/stock/news/255615/smart-beta-investing-fad-or-future-of-the-etf-industry )
If you have been paying attention in the ETF world as of late, you have definitely seen the emergence of the ‘smart beta’ trend. This approach looks to go beyond market cap weighting—which gives the largest companies the biggest weighting in an index or fund—and focus in on various factors instead.
Factors include tried-and-true methods such as value or growth, but the smart beta explosion has gone beyond these two staples in recent years to other factors. These include yield, low volatility, and momentum, just to name a few.
But are these new paths a trap for investors, or truly a better way?
To get some insights on this important topic, I spoke with Rolf Agather, the Managing Director of Research for North America at FTSE Russell for the latest edition of the Dutram Report. Rolf is an expert in the world of indexing, and was able to shed some light on this trend, and what it means for investors too.
Types of Factors
In particular, we discuss what makes a value and growth stock in some indexes, such as those that comprise IWF (growth) or IWD (value) which are for large caps, or IWN (value) or IWO (growth) for small caps. Additionally, we take a closer look at some of the indexes and funds that are focused on the ‘newer’ factors out there such as yield ONEY, low volatility ONEV or momentum ONEO. Rolf discusses these factors—as well as what can lead to underperformance or strength for these—as well as what sets them apart and why these new factor-based investing strategies were put out there too.
We also talk briefly about the latest trend in the smart beta craze, and that is the idea of multi-factor investing. After all, if one factor is good, why not use a combination to get a more well-rounded exposure profile?
One of the most famous examples of this process is the so-called RAFI system. This technique looks at several different fundamental factors—including book value, cash flow, sales and dividends—and are weighted by the strength of their scores in these areas. Rolf and I talk about this approach, some of the pros and cons behind this model, and how it relates to the PowerShares FTSE RAFI US 1000 ETF PRF.
Bottom Line
We also discuss if market cap indexing is ‘broken’ and what is on the horizon for factor investing in the future too. But are these strategies better choices for investors or just a passing fad to collect assets?
Listen to this edition of the Dutram Report and be the judge yourself. And make sure to write us in at podcast @ zacks.com or find me on twitter @EricDutram to let me know what you think of this interview, and the smart beta trend as well.
But for more news and discussion regarding the world of ETFs, make sure to be on the lookout for the next edition of the Dutram Report , and check out the many other great Zacks podcasts as well!
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ISHARS-RS 2K GR (IWO): ETF Research Reports
ISHARS-RS 2K VL (IWN): ETF Research Reports
ISHARS-RS 1K GR (IWF): ETF Research Reports
SPDR-R1000 MF (ONEO): ETF Research Reports
SPDR-R1000 LVF (ONEV): ETF Research Reports
ISHARS-RS 1K VL (IWD): ETF Research Reports
PWRSH-FTSE RAFI (PRF): ETF Research Reports
SPDR-R1000 YF (ONEY): ETF Research Reports
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