Smart-Beta - an Explanation
Investing in the stock market exposes investor to two risks. One is the overall risk of the market driven by features such as interest rates, the economy, political events at home and abroad and a variety of other factors. In addition there is the risk of the individual company selected for investment such as happened to BP in 2010 and many banks in 2008.
The risk from individual companies is reduced if a fund holds all, or at least the bulk of the constituents of the index. The return of that index is known as the market beta while the additional return generated by a stock is known as alpha. There are now a number of funds, usually described as index or tracker funds, that provide investors with a mechanism to capture the beta of the market in a simple and inexpensive manner. There are also a few funds that seek to deliver the market returns in a different , and arguably better, way than using market capitalisation to determine portfolio construction. It is becoming common practice to describe these as smart-beta funds.
Because these funds use a mix of structures, typically ETFs and OEICS it is hard to find data to make comparisons in one place. It is also difficult to find all the data you need to make a full and proper comparison. It is not much use identifying a low cost fund if the minimum investment is a much larger amount than you wish to invest.
This site has been set up to help address this problem. It is not comprehensive and should only be regarded as a start. It is certainly not financial advice and should not be considered as such. It is no substitute for proper financial advice, however, investors need to be aware that advisors often have an incentive to recommend one fund over another and, as with any product or service, the interests of the provider are not always aligned with that of the user.
The data on this site is provided by the manager of one of the funds listed using publicly available data and information from Bloomberg. Every effort is made to ensure it is up to date, accurate and reliable but no assurances can be given that the data is correct.
The FSA insist that all product providers state that past performance is no guide to future returns. While that may be the case for active funds we disagree that it applies to funds using a passive process. Some processes will be inherently more volatile and more expensive than others. It is also important to understand that large economic trends can heavily influence returns from specific parts of the stock market. These trends can persist for many years.
Nothing on this site should be regarded as advice. It is simply information.
Primary data for funds can be accessed from links available by clicking here
You may contact us by telephone at 0141 931 7645 or by email to enquiries@fundamentaltracker.com
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