Do smart beta ETFs serve their investors or providers?

SINGAPORE (Oct 9): Lately, a lot of media coverage has been given to the popular rise of smart beta exchange-traded funds (ETFs).

To recap, smart beta investing is about translating stock selection characteristics (such as earnings, cash flow, dividend yields and gearing) used by active managers into a fixed set of rules governing trades. This compares to simply following a traditional market capitalisation-based index.

The goal is to convert the alpha (of active management) into beta (still passive investing, cost-effective and transparent). This has become a strong marketing point for smart beta ETFs, attracting a tide of money from cost-conscious investors who are fed up with subpar returns by active fund managers.

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