Sitting between active and index strategies, smart beta represents an evolution in index investing and an opportunity for investors. Rather than simply weighting stocks by market cap, these indices are constructed to identify and exploit specific factors.
Investors can capture these exposures by utilizing the SPDR range of Smart Beta ETFs, which has funds offering exposure to the value, volatility and quality dividend factors.
Smart Beta ETFs can help investors achieve targeted outcomes through factor-based investing.
Factor investing seeks to systematically identify and exploit specific drivers of risk and return, aiming to deliver a premium above the traditional market-cap benchmarks.
ETFs can be used to track a specific factor index to deliver diversified, transparent and cost-efficient3 access to smart beta.
Take Shelter When Faced With Volatility
In uncertain times, it may be a good idea to adopt a defensive posture while staying fully invested in the equity markets. This can be achieved through a low volatility strategy.
The SPDR low volatility ETFs track indices that are weighted according to the volatility of the underlying stocks rather than their market capitalisation, which provides a measure of protection against market downturns.
We believe these ETFs could generate higher returns than cap-weighted strategies over the long term, exploiting the so-called 'low volatility anomaly'.
Moreover, a low volatility strategy may be particularly suited to those investors who are not required to adhere to any particular benchmarks and who wish to take cover from heightened market volatility.
Vipul Faujdar, SPDR ETFs – UK Wealth explains how low volatility strategies can offer upside participation while introducing defensiveness into portfolios.
Value Investing for the Long Term
Academic evidence has shown the outperformance of companies with lower valuations over the long run on a risk-adjusted basis, as documented by studies such as Fama-French.4
The SPDR range of value ETFs is based on indices that emphasise metrics such as sales, book value and earnings to provide a comprehensive measure of value.
Investors looking for specific exposure to value companies can select from US and Europe. Additionally, SPDR offers ETFs that emphasise both value and smaller-sized companies to suit those investors with specific allocation preferences.
Companies that consistently pay higher dividends often possess sound fundamentals, such as lower debt and stable earnings. When seeking dividend yield, these are important characteristics, as they can insulate a company from a sudden market downturn.
The SPDR Dividend Aristocrats ETFs are weighted according to the highest yielding dividend stocks, with a filter to emphasise those companies that have sustained or increased dividends over time.
1 Source: Morningstar, as of 30 April 2019. 2 Source: FactSet, as of 30 April 2019. 3 Frequent adding of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs. 4 Source: Journal of Financial Economics 33 (1993), Common risk factors in the returns on stocks and bonds by Eugene Fama and Kenneth French.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.
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Information related to Mexico
This information does not constitute and is not intended to constitute marketing or an offer of securities and accordingly should not be construed as such. The Funds referenced herein have not been, and will not be, registered under the Mexican Securities Market Law (Ley del Mercado de Valores) and may not be publicly offered or sold in the United Mexican States. Disclosure documentation related to any of the aforementioned Funds may not be distributed publicly in Mexico and shares of the Funds may not be traded in Mexico.
UCITS SPDR ETFs
SPDR ETFs Europe I Plc and SSGA SPDR ETFs Europe II Plc issue SPDR ETFs, and are an open-ended investment company with variable capital having segregated liability between its sub-funds. The Company is organised as an Undertaking for Collective Investments in Transferable Securities (UCITS) under the laws of Ireland and authorised as a UCITS by the Central Bank of Ireland.
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US SPDR ETFs
The distribution of interests of U.S. SPDR ETFs in Switzerland will be exclusively made to, and directed at, Qualified Investors only, as defined by Article 10(3) and (3ter) of the Swiss Collective Investment Schemes Act (“CISA”) and its implementing ordinance. Accordingly, U.S. SPDR ETFs are not registered for public distribution with the Swiss Financial Market Supervisory Authority ("FINMA"). Certain funds may not have appointed a Swiss Representative and Paying Agent. For those funds with a Swiss Representative and Paying Agent, the legal documents of the U.S. SPDR ETFs may be obtained free of charge from the Swiss Representative and Paying Agent, State Street Bank International GmbH, Munich, Zurich Branch, Beethovenstrasse 19, 8027 Zurich, or at www.ssga.com, as well as from the main distributor in Switzerland, State Street Global Advisors AG (“SSGA AG”), Beethovenstrasse 19, 8027 Zurich. For those funds without Swiss Representative and Paying Agent, please observe that the funds are open to Qualified Investors at the exclusion of Qualified Investors with an opting-out pursuant to Art. 5(1) of the Swiss Federal Law on Financial Services ("FinSA") and without any portfolio management or advisory relationship with a financial intermediary pursuant to Article 10(3ter) CISA (“Excluded Qualified Investors”). For further information and fund documents please contact SSGA AG.
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