Smart Beta ETFs are ETFs that track the overall performance of an index that is not necessarily marketplace-cap-weighted or weighted by standard metrics. Smart Beta ETFs can be deemed as an intelligent version of passive investment goods. These are factored indices, exactly where a fund manager follows an index based on specific sacrosanct guidelines.
Prateek Mehta, Co-Founder and CBO, Scripbox, says, “These indices could be based on factors that are qualitative in nature, but can be applied to component selection and portfolio construction using quantitative or rule-based models.”
Smart Beta ETFs bring in the benefits of each passive and active management by combining each into a single model.
Amit Dhakad, CEO and CTO of marketplace Pulse Technologies, says, “Smart Beta ETFs are a combination of active and passive investing with an enhanced indexing strategy. It is a rule-based systematic approach to choose companies with specific metrics.”
With clever beta ETFs, the mixture of active and passive style exactly where the investment philosophy remains passive, but the investment style becomes rule-based, therefore, active. Nitin Kabadi, Head- ETF Business, ICICI Prudential AMC says, “This feature separates it from other traditional ETF offerings, making it an interesting proposition for those investors who otherwise consider index fund or ETF to be boring.”
Unlike classic ETFs which blindly track an index, clever beta ETFs are based on customized indexes with one or more predetermined aspects. They are aimed at enhancing returns and decreasing threat as compared to classic capitalization-weighted benchmark ETFs.
Currently, the substantial-cap category based ETFs dominate the ETF universe. Kabadi, of ICICI Prudential AMC, says “With the improvement in market understanding, there could be an increase in investments in the ETFs tracking midcap and small-cap segment as well, similar to other developed markets like the US and Europe.”
Having mentioned that, market authorities say even though this is a promising space and is evolving really speedy, the universe of investable clever beta goods is nevertheless really restrictive in India.