another Sunday morning reads....for those interested in "BETA"
Wondering About Smart Beta? Read This Now! [2 Dec 16]
What Exactly Are Smart Beta Funds?
Most investors are probably familiar with exchange-traded funds (ETFs) – instruments that trade like equity securities on public stock exchanges like the Singapore Exchange (SGX) or the Hong Kong Stock Exchange (HKEX).
They are known as index funds because they are designed to track the performance of an index. Popular ETFs include the SPDR S&P 500 ETF (SPY), which tracks the popular and widely-followed S&P 500 Index in the US, and the Nikko AM STI ETF (G3B), which tracks Singapore's Strait Times Index.
Because they aim to provide investors exposure to an index, they are also known in the investment industry as having 'beta' exposure, whereby beta refers to market risk.
No active management is required on the part of the index fund provider as compared to actively-managed strategies run by investment professionals. Hence, passive investors utilise index funds to build their portfolios and to collect the returns that broad market indexes deliver over time.
Due to their lower expenses, they have become popular among many investors in recent years.
Obviously, the downside of investing via index funds is that you only get what the market delivers (since they track the performance of market indexes).
Smart Beta index funds started coming into inception when the demand for an alternative to traditional ‘passive investing’ rose, leading industry practitioners and providers to devise alternative solutions to cater to this demand.
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