Old-School Smart Beta ETFs Worth A Look

June 07, 2017

As such, Walmart, which is a CFRA Strong Buy recommendation, is the largest holding. Top-10 holdings also include undervalued Apple, General Motors and UnitedHealth Group. CFRA views the collective holdings as attractively valued and incurring moderate risks. RWL has a 0.39% net expense ratio. The ETF launched in 2008 and has approximately $660 million in assets.

Similar to RSP, RWL has more exposure to the consumer discretionary sector and less in the information technology sector than SPY, despite holding same securities.


Same S&P 500 Index, Different Exposure

Source: CFRA’s MarketScope Advisor, June 5, 2017


By rebalancing throughout the year, RSP, PRF, DLN and RWL enable investors to essentially increase exposure to the stocks that better reflect the smart-beta attributes (size, value, dividends and revenues, respectively) in the ETF wrapper without regularly incurring capital gains that are traditional for actively managed mutual funds.

While these are examples of smart-beta ETFs that have favorable holding-based attributes, there are others that are not as worthy of attention, in our opinion. The term “smart-beta ETF” presumes that all nonmarket-cap-weighted ETFs are strong candidates for consideration.

But just as informed diners would not simply take a restaurant’s word for it that gourmet food is being served, investors should not take an asset manager at face value when they claim that what’s inside the ETF in question is of the highest quality.

CFRA Research reports on the above ETFs can be found on MarketScope Advisor and other platforms.

At the time of writing, neither the author nor his firm held any of the securities mentioned. Todd Rosenbluth is director of ETF and mutual fund research at CFRA, an independent research firm that acquired S&P Global Market Intelligence's equity and fund business in October 2016. He can be reached at [email protected]. Follow him at @ToddCFRA.


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