An Anatomy of Smart Beta Value ETFs
Can Value Investors Capture Factor Returns via Smart Beta?
January 2019. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- Smart beta Value ETFs are relatively homogenous
- Some show high exposures to other equity factors, which may represent risk
- Excess returns from smart beta are significantly lower than long-short factor returns
INTRODUCTION
The last ten years can be viewed as a lost decade for Value investors as excess returns were almost consistently negative. Although ETF investors have allocated more capital to the Growth factor as of the end of 2018, the top five smart beta ETFs by assets under management still contain two products focused on Value (VTV & IWD).
ETF issuers have launched Value-focused products for various sectors and indices, offering investors choice but also increasing the complexity in asset allocation. In this short research note, we will analyze the spectrum of smart beta Value ETFs available in the U.S. and reconcile smart beta to factor investing returns (read Smart Beta vs Factor Returns).
50 SHADES OF SMART BETA VALUE ETFS
We focus on smart beta ETFs traded in the U.S. stock market that provide exposure to the Value factor. A few of these were launched in 2000, providing investors will almost two decades of data for performance analysis. Some of the ETFs are sector-focused, which explains the outliers in chart below. However, the majority of smart beta Value ETFs generate relatively homogenous returns (try Finominal’s Alpha Analyzer for alpha and contribution analysis).
