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Demystifying ??Smart Beta?? Funds

Although ??smart beta? funds also follow a passive index like other ETFs, the smart beta funds do so in ways besides the traditional market-cap-weighted approach.

Many exchange-traded funds (ETFs) have their holdings weighted by market capitalization. In other words, the total market value of a company’s shares determines what proportion of an ETF??s assets are invested in that holding. But ??smart beta? funds are different, since they are not market-cap weighted.

For example, the market-cap-weighted SPDR S&P 500 (SPY), an S&P 500 ETF, has as its top two holdings Apple (AAPL), 3.36%, and Exxon Mobil (XOM), 2.47%. Apple is a bigger company than Exxon Mobil, so it has proportionally more representation in SPY??s holdings.

Although ??smart beta? funds also follow a passive index like other ETFs, the smart beta funds do so in ways besides the traditional market-cap-weighted approach.

Read more about smart beta funds at Eagle Daily Investor.

Written By

Doug Fabian is the editor of Successful Investing and High Monthly Income, and is the host of the syndicated radio show, "Doug Fabian's Wealth Strategies." Taking over the reigns from his dad, Dick Fabian, back in 1992, Doug has continued to uphold the reputation of the newsletter as the #1 risk-adjusted market timer as ranked by Hulbert??s Investment Digest. For more than 30 years, Successful Investing (formerly the Telephone Switch Newsletter) has produced double-digit annual gains. Doug has become known for his expert knowledge and timely use of innovative tools like Exchange Traded Funds, bear funds and Enhanced Index funds to profit in any market climate.

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Demystifying ‘Smart Beta’ Funds

Many exchange-traded funds (ETFs) have their holdings weighted by market capitalization. In other words, the total market value of a company’s shares determines what proportion of an ETF’s assets are invested in that holding. But “smart beta” funds are different, since they are not market-cap weighted.

For example, the market-cap-weighted SPDR S&P 500 (SPY), an S&P 500 ETF, has as its top two holdings Apple (AAPL), 3.36%, and Exxon Mobil (XOM), 2.47%. Apple is a bigger company than Exxon Mobil, so it has proportionally more representation in SPY’s holdings.

Although “smart beta” funds also follow a passive index like other ETFs, the smart beta funds do so in ways besides the traditional market-cap-weighted approach.

Read more about smart beta funds at Eagle Daily Investor.

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