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Not All Smart-Beta Funds Are Smart

Not all strategic-beta funds are worth investing in, but the ones that are offer transparency, sensible portfolio construction, and reasonable fees.

Alex Bryan 22.01.2018

“Smart-beta" strategies are index funds that attempt to beat the market or achieve specific objectives, like higher income or lower risk, through security selection, alternative weighting, or some combination of the two.

They express active bets, which inevitably will go through stretches of strong and weak performance. It's important to understand the strategy, evaluate it as you would an active manager, and have the patience to stick with it.

While some smart-beta funds have merit, not all do. Morningstar prefers to call smart beta "strategic beta" to remove the positive connotation.

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About Author

Alex Bryan

Alex Bryan  Alex Bryan, CFA is the Director of Passive Fund Research with Morningstar.

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