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A New Twists on Smart Beta

Smart beta is getting a lot of attention from the financial press and new products are coming to market daily. FastTrack is adding 20-30 a month. A great quote from the linked article speaks to the scale: “Investors handed $184 billion to smart beta ETFs from 2015 to 2017 while pulling $308 billion from equity mutual funds…”

What is smart beta? Essentially, a fund/ETF that tracks an alternative index vs a traditional market cap weighted index. The alternative index emphasizes capturing investment factors or market inefficiencies in a rules-based and transparent way. Some more popular alternative index factors are equal weight, momentum, volatility, P/E, and combinations of them all.

Typically these indexes are re-calculated monthly or quarterly, with the security investments doing the same.

FastTracker’s have been there from the beginning, one of the first products launched was SPLV – powershares low volatility S&P 500 ETF launched in 2011. (If you’re a long time FastTracker, this should sound pretty familiar. Think… Sharpe ratio momentum model.)

What makes the Vanguard funds different and worth mentioning? Essentially its the trading frequency. Instead of re-balancing or re-allocating once a quarter, these securities take a more active approach and trade holding daily if necessary. This way as factors change, the holdings update immediately vs waiting for the end of the quarter. Per Vanguard, this should give a more effective factor exposure.

We’ve added the new securities to our database and I’m interested in a comparative analysis vs what’s on the market now. A great exercise for FT Cloud+ users is running a daily rebalanced portfolio vs a monthly or even a yearly rebalance momentum model. You’ll see trading more frequently rarely adds to return. I’m interested in seeing if these deliver something different.

VFVA – U.S. Value Factor ETF
VFLQ – U.S. Liquidity Factor ETF
VFMO – U.S. Momentum Factor ETF
VFQY – U.S. Quality Factor ETF
VFMF – U.S. Multifactor ETF
VFMV – U.S. Minimum Volatility ETF
VFMFX – U.S. Multifactor Fund Admiral
VMNVX – Vanguard Global Min Volatility Admr

https://www.bloomberg.com/gadfly/articles/2018-03-09/vanguard-crushed-active-investing-now-it-could-save-it