Dreyfus Launches Three Funds Offering Strategic Beta Exposure

Ted

FYI: Dreyfus Launches Three Funds Offering Strategic Beta Exposure“Smart beta” is one of the top buzzwords of 2014, as a number of ETF and mutual fund products boasting “smart” or “strategic” beta features have come to market this year. Such strategies are typically designed to have a lower correlation to traditional cap-weighted benchmarks with improved risk/return charactristics, and may also offer improved downside protection. In this way, smart beta funds have similar return objectives to many actively managed funds, but with a transparent and rules-based approach to investment selection that helps keep fees lower.
Regards,
Ted
http://dailyalts.com/dreyfus-launches-three-funds-offering-strategic-beta-exposure/

Example Of Real Strategic Beta Exposure:

mzckf

Considering Smart Beta article from Wisdom Tree is helpful for understanding more about smart beta: http://www.wisdomtree.com/about/pdf/what-others-saying/WisdomTree-Considering-SmartBeta-Reprint-1697.pdf

Old_Skeet

Here is a link that explains smart beta (short version).

http://lexicon.ft.com/Term?term=smart-beta

JohnChisum

Thanks Old_Skeet. Your explanation is clearer than Teds.

rjb112

JohnChisum said:

Thanks Old_Skeet. Your explanation is clearer than Teds.

John, I didn't open any of the links, but this year I've read several articles about "smart beta" or "strategic beta". What I've learned from those articles is basically that any 'index' weighting that is not capitalization weighted like the S&P 500 and like most traditional indexes, is "smart beta", if it was done that way to try and enhance returns based on back testing.

A prime example are the RAFI Fundamental Indexes from the Rob Arnott group, where they weight the index constituents by several fundamental factors such as free cash flow, dividends, sales, etc. They want to get away from cap weighting.

Another example are the dividend weighted indexes found in many of the Wisdom Tree ETFs.

Other examples could be earnings weighted. Anything to get the market price factor out of the equation.

Another example is equal weighted. Guggenheim has an equal weighted S&P 500 ETF, so I guess each stock is weighted 0.2%

Some "smart beta" ETFs tilt to value and small cap.
Some address volatility. Some address momentum.

A better term than "smart" beta would be "Factor Investing".....it's essentially coming up with a rules based method of weighting each stock in the index, and in many cases, a rules based method of selecting the stocks in the index.

JohnChisum

Until a few month ago I paid little attention to these funds. Since then I researched some especially Arnott and the RAFI fundamental index, in particular the offering from Schwab. FNDF. It's on my watch list.

Having more choices is always better.

rjb112

JohnChisum said:

Until a few month ago I paid little attention to these funds. Since then I researched some especially Arnott and the RAFI fundamental index, in particular the offering from Schwab. FNDF. It's on my watch list.

Having more choices is always better.

I'm in the same boat as you here John. We have ended up in the same place. I heard Rob Arnott give a webinar on "smart beta" and the RAFI, and it was very appealing, the idea of getting the price out of the weighting scheme. It's certainly an intriguing idea, possibly worth it. Professor Jeremy Siegel is also big on an alternative way to weight indexes. He's the advisor to the Wisdom Tree family. He's apparently big on dividend weighting. It all sounds very interesting. One thing is that the expense ratios are higher on these alternative methods of weighting and selection of the index. VTI only costs 5 basis points, .05%. A big issue is that if you are already invested, you have to sell things and pay capital gains taxes to re-invest in a "smart beta" index. We should take a look at performance of the RAFI funds vs. VTI and the traditional cap weighted index funds.