9 Landmark Smart Beta ETFs

July 26, 2016

Smart-Beta ETF No. 6: WisdomTree MidCap Dividend ETF (DON)

AUM: $2.0 Billion

Inception Date: 6/16/2006

Why: Introduced Idea Of Replacing All Exposure With Smart-Beta ETFs

WisdomTree burst onto the ETF scene in 2006 by launching 20 different ETFs united by a common, alternative weighting methodology. Specifically, its funds focused on weighting stocks by their contribution to the dividend stream rather than their market capitalization.

By launching a full suite of products, WisdomTree challenged investors to put smart-beta-style ETFs at their core of their portfolios. After all, it’s one thing to add a dividend-weighted fund to the “explore” portion of your portfolio, and quite another to replace all of your core with a dividend-weighted methodology.

I’ve included the WisdomTree Mid Cap Dividend ETF (DON | A-100) here simply because it’s currently one of the largest of the 20 original ETFs launched by WisdomTree; the recognition should really go to the full suite.

Smart-Beta ETF No. 7: First Trust Consumer Discretionary AlphaDex Fund (FXD)

AUM: $1.8 billion

Inception Date: 5/8/2007

WHY: By Investing For The Long Term Of Its ETF Business, First Trust Proved You Can Build Real Traction If You Wait For The Performance To Come

First Trust is unique in the ETF space, but it’s played a critical role in the development of the smart-beta market. It came to market first in 2006 and in earnest in 2007, deploying a large swath of ETFs based on an “AlphaDex” methodology that was one of the most complete, multifactor methodologies launched at the time.

First Trust deserves a call-out in this history for three reasons. First, the company launched a wide swath of funds and then stuck things out. Even when the funds didn’t attract much in the way of assets in the first few years, the firm didn’t pack it in and close up shop; they waited, patiently, until the funds delivered a strong run of performance, and then they sold them aggressively to advisors. Secondly, the firm’s early partnership with Dorsey, Wright & Associates created a series of model portfolios that helped jump-start the “ETF strategist” phase. And finally, by offering an array of ETFs that appealed to investors who previously loved picking actively managed funds, it significantly widened the list of advisors who considered ETFs.

Smart-Beta ETF #8: PowerShares S&P 500 Low Volatility ETF (SPLV)

AUM: $8 Billion

Inception Date: 5/5/2011

Why: Brought Single-Factor Exposure Into Vogue

The PowerShares S&P 500 Low Volatility ETF (SPLV | A-70) wasn’t the first ETF to target low-volatility exposure; that recognition goes to a now-defunct ETF from Russell Investments. But SPLV was the first to catch fire, capitalizing on the so-called low-vol anomaly: The finding, borrowed from academia, was that stocks with lower volatility seem to have higher long-term returns than stocks that bounce around a lot.

This remarkable combination attracted a flock of investors who quickly pushed assets into the billions. In so doing, SPLV broke the mold of old-school factors like value and dividends, and pushed us all into the modern era of low volatility, quality, momentum investing and more. Still a popular fund, it truly started a trend.

 

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