Smart Beta 7: ETFs From The Inside Out

May 27, 2014


Strategy Cluster Example Fund Strategy AUM ($)
as of 5/15/2014
Dividends Bottom-up VIG 104,132,989,895
Value Bottom-up IWD 78,927,182,921
Fundamental Bottom-up PRF 19,068,811,519
Currency Hedged Fundamental Bottom-up DXJ 12,020,119,001
Currency Hedged Dividends Bottom-up DXJS 73,910,070
Growth Hybrid IWF 80,731,974,316
Multi-factor Hybrid FXH 28,400,706,786
Low Volatility Technical SPLV 1,282,894,074
Optimized commodity Technical DBC 9,999,195,916
Momentum Technical PDP 3,965,570,267
Target Duration Technical TDTT 2,419,212,750
Volatility hedged Technical SPXH 1,503,889,632
Buy-write Technical PBP 353,815,575
High Beta Technical SPHB 243,405,913
Duration Hedged Technical HYHG 235,540,370
Total AUM     353,359,219,003

"Smart-beta" seekers will appreciate the elegance of the strategic group. It includes all asset classes. Its focus on security-level economic relevance allows established approaches like value or dividend investing to share the tent with newer methods like low volatility and commodity tenor optimization. It makes nonvanilla selection and/or weighting a necessary, but not sufficient, condition for inclusion.

Nor is it outcome-sensitive. It requires neither risk-adjusted outperformance nor a specific level of factor exposure. Instead, it focuses on construction methodologies. Performance and future factor exposure cannot be analyzed ex-ante, but construction methodology can.

For those who prefer the term "quasi-active," the strategic group's requirement of research-based portfolio formation links the practices of many active managers to passive, rules-based strategies.

Moreover, you can parse the strategic group however you like.

If you only want newfangled strategies, because value and growth are too established to seem "smart" to you, just cut out the dividends, buy-writes, fundamentals, value and growth funds, and you'll have a really cutting-edge list:


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