Toward Smarter-Beta ETFs

I recently attended the largest ETF conference in the country, and the nearly 2,000 attendees all were focused on how to make the most of ETF investing. There was a tremendous lineup of speakers, a wide array of topics were discussed and just about every ETF issuer was in attendance.

In the weeks to come, we’ll be covering many of the following in greater detail. But today, I wanted to start out with one of the biggest trends I see developing in the ETF industry, and that is smart-beta funds.

Smart-beta ETFs have become all the rage in product development from the ETF industry. Basically, smart-beta funds represent an altered version of traditional market-cap weighted index funds.

WisdomTree, PowerShares and iShares all have developed new product offerings with a smart-beta spin. The idea of smart beta is to construct portfolios toward a more specific outcome, such as enhanced return, greater risk reduction, higher income generation or improved diversification.

The growth of smart-beta ETFs has been remarkable of late, and I can certainly understand why. Everyone is looking for a little extra performance out of their money, and smart-beta products offer just that. The most recent data from the ETF industry suggests that smart-beta funds now represent 20% of all assets in ETFs, or more than $400 billion.

Some great examples of smart-beta ETFs include the Guggenheim S&P 500 Equal Weight ETF (RSP) and the PowerShares S&P 500 Low Volatility ETF (SPLV), but there are hundreds of these smart-beta funds available today, and I suspect there will be many more in the years to come. And of course, this is a trend we’ll be watching and reporting on for you, the Weekly ETF Report reader, so you never miss out on investable ETF opportunities.