EbeneMagazine – GB – BQ Big decisions: Smart Beta ETFs – Are they the best of both worlds?

Investors, having often seen managers of actively managed mutual funds fail to beat the benchmark, wonder why they shouldn’t… ??? ? Don’t have a higher percentage of their funds parked in passive mutual fund plans

Passive systems are either exchange traded funds or index funds that mirror a benchmark.For example, a Nifty ETF would deploy funds in all 50 stocks in the index in proportion to their weight.So, in early October, if you put Rs 100 into a Nifty ETF, almost Rs 15 would go to Reliance Industries Ltd

Supporters of active fund management say it is unfair to judge the performance of actively managed funds on the basis of the past two years The passive investing camp, on the other hand, points out the lower costs associated with investing in these schemes, which leads to long term benefits

The growing interest in passive investing has led to the creation of a new category of mutual funds – a mix of passive and active strategies They are called smart beta ETFs

These ETFs are made up of a list of stocks selected according to criteria determined during their launch The criterion is often a factor or a combination of factors such as low volatility, value, quality or momentum For example, a Nifty Smart Beta ETF focused on low volatility would include stocks from the index of 50 stocks that are relatively less volatile than their peers

In this BQ Big Decisions podcast, BloombergQuint talks to Chintan Haria, head of product development and strategy at ICICI Prudential Asset Management, about smart beta ETF types and how they compare to active mutual funds and passive

Investment funds, exchange traded funds, ASX, The Vanguard Group, BetaShares