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Research Affiliates launches smart beta ETF analysis tool


Research Affiliates has launched Smart Beta Interactive, a new website that provides investors information on factors and smart beta strategies, including past performance history, relative valuations, estimates of prospective alpha, and liquidity and risk attributions as well as other implementation characteristics.

The firm writes that their interactive website spans factors, such as value, income, low volatility, quality, momentum, multi-factor, and size, and an array of widely used ‘smart beta’ strategies.

The ETF industry focuses intense attention on past performance, even though this is a flawed predictor for the future, Research Affiliates writes. “By going beyond historical returns, Smart Beta Interactive is meant to benefit the investment community by providing a richer toolkit, emphasising future return expectations anchored on relative valuations and transaction costs.”

Rob Arnott, Chairman and CEO, Research Affiliates says: “The Smart Beta Interactive website is the culmination of years of research around smart beta and factor valuations. We believe investors should not focus on strategies and factors with brilliant recent results. We all fare much better when we emphasise factors or strategies that are trading cheap relative to their own historical norms, and deemphasize the more expensive factors or strategies. Now all investors have access to an online tool that will help them make this determination for themselves.”

Chris Brightman, (pictured) Chief Investment Officer, Research Affiliates says: “Smart beta, also called factor investing, applies well-vetted research findings to create simple, transparent, low-cost investment strategies that offer the opportunity to outperform the market. Today, after more than a decade of success delivering excess returns to investors through the Fundamental Index, we find a proliferation of competing factor-based products. With this new tool, we provide investors the information they need to make informed decisions: clear methodology descriptions, historical risks and returns, turnover, transaction costs, capacity, current valuations, and even robust forecasts of future returns.”

John West, Head of Client Strategies, Research Affiliates says: “How do we make smart beta provide the greatest investor benefit?  Hint: It’s not choosing the best ‘backtest alpha’ and the inherent returns chasing it produces.  Instead, our new tool helps investors focus on what matters for their own journey forward by setting reasonable forward expectations and understanding the transaction costs embedded in the various strategies, particularly as they gain larger scale.”

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