Smart Beta ETF Investing: Access Potential Drivers of Return
Smart beta investing seeks to provide a cost-effective, rules-based strategy to potentially outperform a traditional market cap-weighted benchmark. Smart beta ETFs are designed to capture specific factors, or investment characteristics, that drive risk and return — and can do so in a relatively low-cost, systematic manner.
Why Focus on Factors?
Factors—characteristics such as value, quality, size, momentum, volatility and dividend yield — are one of three elements that can drive portfolio returns. Extensive research has shown that factor exposure accounts for 50% to 80% of a portfolio’s excess return above a market cap-weighted benchmark.1
Why Choose Smart Beta ETFs?
Investors use smart beta ETFs to pursue a wide range of goals:
Supplement a traditional index portfolio by accessing factors or risk premia that drive alpha
Mitigate Downside Volatility
Enhance risk-adjusted returns by gaining exposure to factors that tend to perform relatively well during market downturns
Search for Yield
Increase income-generation by tilting a portfolio toward higher-yielding assets
Seek outperformance through vehicles with lower fees and better tax efficiency than actively managed strategies
Access Uncorrelated Returns
Improve portfolio diversification by increasing exposure to factors with lower correlation to the broader market
Ways to Use Smart Beta ETFs
Screens/Tilts to Capture Factor Premia
Six primary factors have historically outperformed the market cap-weighted benchmark. Harnessing the potential of smart beta requires understanding the screens or tilts that can be used to access these factors.
Investors can use single-factor smart beta ETFs to add exposures one at a time based on their market views or needs. This approach can make it easier to attribute performance more precisely and allow investors to tailor the implementation to their specific beliefs and objectives.
State Street’s SPDR smart beta ETFs are built in partnership with the world’s leading index providers and fueled by expertise that comes from more than 25 years of smart beta experience. We pay rigorous attention to the many details — from design to execution — that can add up to important performance and diversification benefits for investors.
A Smart Beta strategy does not seek to replicate the performance of a specified cap-weighted index and as such may underperform such an index. The factors to which a Smart Beta strategy seeks to deliver exposure may themselves undergo cyclical performance. As such, a Smart Beta strategy may underperform the market or other Smart Beta strategies exposed to similar or other targeted factors. In fact, we believe that factor premia accrue over the long term (5-10 years), and investors must keep that long time horizon in mind when investing.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third party
Diversification does not ensure a profit or guarantee against loss.
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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You should obtain and read the SPDR prospectus and relevant Key Investor Information Document (KIID) prior to investing, which may be obtained by clicking here. These include further details relating to the SPDR funds, including information relating to costs, risks and where the funds are authorised for sale.
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.
Before investing, consider the funds' investment objectives, risks, charges and expenses. To obtain a prospectus which contains this and other information, download a prospectus here, or talk to your financial advisor. Read it carefully before investing.