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Alternative Market Briefing

What Fraction of International Smart Beta is Dumb Beta? (More than you think)

Friday, March 03, 2017

Matthias Knab, Opalesque:

AlphaBetaWorks writes on Harvest Exchange:

Though many smart beta ETFs do provide valuable exposures, others mainly re-shuffle familiar dumb beta factors. Our earlier article showed that traditional, or dumb, Market and Sector Betas account for over 92% of monthly return variance for most U.S. equity smart beta ETFs. This article extends the analysis to international smart beta ETFs.

It turns out that international smart beta ETFs are even more heavily dominated by dumb beta factors than their U.S. counterparts. Consequently, rigorous quantitative analysis is even more critical when deploying smart beta strategies internationally. With capable analytics, investors and allocators can detect unnecessarily complex and expensive re-packaging of dumb international factors as smart beta, identify products that do provide unique exposures, and control for unintended international dumb factor exposures.

Measuring the Influence of Dumb Beta Factors on International Smart Beta ETFs

We started with approximately 800 smart beta ETFs . Since our focus was on the broad international equity strategies, we removed portfolios with over 90% invested in U.S. equities and portfolios dominated by a single sector. ......................

To view our full article Click here

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