Smart beta ETFs make up a small, but growing, slice of the top three index providers’ business, based on ETF assets.
At First Bridge Data, a CFRA company, index-based ETFs are split between traditional beta funds that track a market-cap-weighted index; smart beta funds that track an alternatively weighted index; and leveraged/inverse ETFs that either amplify or seek to benefit from the decline in the returns of market-cap-weighted indexes.
Smart beta funds have gained in popularity in recent years, as investors have sought to improve on the reward or reduce the risk of traditional beta funds without employing leverage. Some smart beta types include dividend, low volatility, value and multifactor; the latter combines multiple metrics in one index-based approach.
Yet smart beta remains a modest percentage of ETF assets tied to indexes from the top three index providers as demand for lower-cost traditional beta funds has been even stronger.