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Old 07-09-2017, 01:03 PM   #1
Keloika
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Smart Beta vs Cap Weighted ETFs?

Smart Beta ETFs weigh stocks based on one or multiple factors that have been suggested to lead to higher risk-adjusted returns. For example iShares' LGRF uses factors of quality, value, size and momentum.

Backtesting suggests that such ETFs can beat corresponding indices (e.g. S&P500), but will the premiums last? Are the increased MERs worth it? Is it possible or even likely that the market will overcorrect and turn premiums into losses?

Please don't turn this into ETFs vs active investing.
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Old 07-09-2017, 11:10 PM   #2
PocketInfinities
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Re: Smart Beta vs Cap Weighted ETFs?

0.20% ER for LGRF might be reasonable; depends on the tracking error. Value premium is more suspect for large caps than small caps.

Does the "size" premium still exist? Probably, but you have to control your "junk" - https://www.aqr.com/library/working-...trol-your-junk
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Old 07-12-2017, 10:26 AM   #3
rivercitybirdie
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Re: Smart Beta vs Cap Weighted ETFs?

it's hard to say whether the factors will continue to "work" in the future. they'be definitely gone flat in many cases the last 7-8 years - maybe even longer excluding the credit crisis which i might just ignore for many reasons.

i think weighting S&P stocks on earnings or equally makes quite a bit of sense. or maybe hybrid of 50% market cap and 50% earnings.......... one thing to keep in mind is that i'm sure an EW or earnings-weight on S&P 500 has implicit sector bets.

the low volatility factor is the one that is being debated the most these days i think. google robert arnott on this.

there are some interesting papers you might like... replicating anomalies .... anomalies after academic research published - title??? ......... factor zoo etc....
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Old 07-12-2017, 10:28 AM   #4
rivercitybirdie
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Re: Smart Beta vs Cap Weighted ETFs?

i meant to add that i think smart beta is part of a push towards much lower fees... basically index-plus which is not highly labour-intensive... also, to a certain extent trying to partially replicate what hedge funds do often for 2/20 fees. this is only partial though.
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