A 5-Tool ETF? A Webinar Preview

On Thursday, I’m moderating a webinar on smart-beta ETFs with Jeff Ma (yes, the MIT Jeff Ma who almost broke Las Vegas).

Reviewed by: Matt Hougan
Edited by: Matt Hougan

This may be the 10th smart-beta webinar I’ve moderated this year. ETF providers love to talk about their market-beating strategies, and investors love to listen to ideas about the next big thing.

But I’m actually pretty excited for Thursday’s webinar, The Surprising Correlation Between Winning Sports Franchises and Winning Portfolios, for a couple of reasons.

First, one of my guests on Thursday is Jeff Ma. If you saw the movie “21” or read the book “Bringing Down the House,” you know Jeff: He’s the supersmart student who joins the MIT blackjack team and breaks Las Vegas.

After graduating from MIT (and the blackjack team), Jeff has gone on to an impressive career, alternately working as a quant-analyst for professional sports teams and building innovative companies that get sold to firms like Twitter and Yahoo. Jeff is a research advisor to the sponsor of Thursday’s webinar, Lattice Strategies, which is why he’s joining us on Thursday.

Second, the topic of the webinar is fun. Lattice and Jeff will be drawing analogies between the statistical evaluation of sports players and the evaluation of smart-beta strategies. As a major sports fan (Go Pats!), I love the tie-in, and the chance to talk sports in a serious setting is going to be fun.

But beyond the sports tie-in, I’m actually excited for the financial discussion as well.

The webinar on Thursday goes to the heart of one of the most important debates raging in the smart-beta space right now: whether single- or multifactor strategies deliver the best returns. Lattice’s contention is that both single-factor and the current generation of multifactor funds need to be looked at objectively, using evidence … and not marketing keywords.

On single-factor funds, they believe that isolating factors like low volatility, value, size or quality accidentally may expose people to serious risks that they don’t fully understand, and that may counteract their intended goals. For instance, loading up on low-volatility stocks might give you sector, country, size, growth or other bets you don’t want.

Worse, they say, are strategies that naively load up on stocks exhibiting different, individual factor exposures. Those strategies tend to cancel each other out: stocks that have high exposure to low volatility, for instance, may have negative exposure to momentum, and vice versa. Adding the best low-volatility stocks and the best momentum stocks leaves you with mush.

Their argument is that carefully constructed multifactor ETFs that intentionally allocate risk offer the best approach, allowing you to capture more consistent, unsullied exposure to multiple factors at once.

I don’t know if they’re right. I don’t even know if I believe in smart beta. But I do know that their talk punches a few holes in the prevailing theories, and I’m looking forward to hearing what they have to say.

If you’re interested in smart beta, I’d invite you to join me on Thursday for the talk. Send in some hard questions, be they about smart beta, sports or both. You’ll have a handful of very smart people ready to answer them.

Matt Hougan is CEO of Inside ETFs, a division of Informa PLC. He spearheads the world's largest ETF conferences and webinars. Hougan is a three-time member of the Barron's ETF Roundtable and co-author of the CFA Institute’s monograph, "A Comprehensive Guide to Exchange-Trade Funds."