Nonmarket-cap-weighted equities funds are gathering steam.
Investors have poured $45.93 billion into so-called “smart beta” equities ETFs so far this year, in what amounts to a 20 percent increase in total assets in the segment. The increase reflects just how strong an appetite there is for nonmarket-cap-weighted funds seeking excess returns—or outperformance—in one form or another.
To be clear, there isn’t yet an industrywide definition of what constitutes “smart beta,” and for that matter, there isn’t even a consensus on the term used to describe these strategies.
But for the purposes of this article, we consider smart-beta equity ETFs to be any nonmarket-cap-weighted strategy that employs any form of alternative weighting methodologies. Those include fundamental-, dividend-, equal- and even modified market-cap-weighted strategies, to name a few. Think anything that’s not plain vanilla in the equities space. We are also excluding actively managed funds, leveraged and inverse strategies as well as ETNs.
That gives us a universe comprising 326 equities ETFs with total combined assets of $228.15 billion. In other words, roughly four out of every 10 equities U.S.-listed ETFs in the market today are smart-beta funds of some sort, and about 14 percent of all U.S.-listed ETF dollar assets is currently tied to these strategies.
Some in the industry will argue that smart beta essentially consists only of fundamentally weighted ETFs, which have largely stemmed from Research Affiliates’ Rob Arnott’s original vision 10 years ago. These strategies typically weight securities based on fundamental factors, typically accounting figures, that help determine such aspects as corporate valuation.
That segment of the market includes only 28 equities funds with combined assets of about $6 billion, according to data compiled by IndexUniverse. But it, too, is a segment in expansion: Investors have now poured more than $1.5 billion into these funds so far this year.
Either way, smart-beta ETFs have been all the rage in recent months as investors look for ways to capture excess returns in an environment of compressed interest rates and yields thanks largely to the Federal Reserve’s easy money policies.
Top Gainers ($, Millions)
|Ticker||Name||Issuer||10/30/13 YTD Flows||10/30/13 YTD AUM ($, M)||10/30/13 YTD Turnover|
|DXJ||WisdomTree Japan Hedged Equity||WisdomTree||8.563,24||10.815,18||57.238,85|
|QQQ||PowerShares QQQ||Invesco PowerShares||2.853,44||41.672,60||493.931,98|
|GUNR||FlexShares Morningstar Global Upstream Natural Resources||Northern Trust||2.021,45||2.792,58||3.170,18|
|EEMV||iShares MSCI Emerging Markets Minimum Volatility||BlackRock||2.014,02||2.919,31||6.843,81|
|RSP||Guggenheim S&P 500 Equal Weight||Guggenheim||1.548,40||5.679,83||10.569,77|
|SDY||SPDR S&P Dividend||SSgA||1.223,17||13.043,67||13.643,76|
|IDV||iShares International Select Dividend||BlackRock||1.153,78||2.914,24||3.642,75|
|USMV||iShares MSCI USA Minimum Volatility||BlackRock||1.056,30||2.127,68||7.206,13|