Thu, 16/08/2018 - 12:40
In their latest review for TETF, the index that is based on the ETF industry, Toroso Investments has declared smart beta to be dead.
The firm writes that all of its research begins by embracing the transparency of ETFs and understanding their construction.
“We conduct this research using the tools and resources within our ETF Think Tank. Every study requires a common language or nomenclature as a starting point for classification. This necessary condition is what lead us to question the term ‘Smart Beta’ in a previous post.”
The firm’s working definition at that time was that smart beta was defined as any passive ETF that is not traditional beta. Traditional beta is any ETF that tracks an investable index solely based on market cap, geography, or sector.
“As of today, we declare that the term ‘Smart Beta’ is dead. A term that has no definition is meaningless and only serves to confuse and obscure the true innovations of the ETF ecosystem,” the firm writes.
Each week, to express the progress of TETF.index, Toroso shares a list of industry key performance indicators (KPIs).
“We include various different growth metrics, revenue calculations and market share attribution. One of the KPIs looks at the percentage of revenue derived from ‘Smart Beta’.
“We will no longer cite ‘Smart Beta’ revenue in KPIs and the term has been removed from the security master that powers our ETF Think Tank. We continue to define traditional beta as any ETF that tracks an investable index solely based on market cap, geography, or sector. All other passive ETFs will be defined as non-traditional beta with primary and secondary attributes to describe their value proposition. We believe this nomenclature will help with ETF research and continued growth.”
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