Why Strategic Beta ETFs Make Good Investment Sense

Investors could be forgiven for being sceptical of innovation - often product launches mean higher fees and less transparency. But smart beta funds are different

John Rekenthaler 10 May, 2016 | 2:53PM

As I have learned from bitter experience, the topic of strategic beta, or smart beta, as fund marketers would have it, is not exactly a crowd-pleaser. Today’s article would generate much more interest were the subject Vanguard, or pension plans, or how to make one’s money last while in retirement. Compared with those evergreen themes, the latest investment innovation seems trivial.

The masses have sound instincts: Investment innovations rarely deserve attention. Typically, they combine higher fees with swollen promises. But this time, I promise, is different.

If You Don’t Ask for Much, You Might Not Be Disappointed

The reason it is different is strategic beta, unlike most innovations, demands less from portfolio managers, not more. As a result, it charges less. There aren’t many investment principles sounder than the statement that expecting less and paying less yields better results than expecting more and paying more.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

John Rekenthaler

John Rekenthaler  John Rekenthaler is vice president of research for Morningstar.

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