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Factor Scoring Smart Beta ETFs

Measuring the Value-for-Money Proposition of ETFs

Nicolas Rabener
10 min read
6 Jan 2020

SUMMARY

  • The difference between the cheapest and most expensive smart beta ETF in the US is 59 bps on average
  • Some smart beta ETFs offer negative factor exposure, which requires explanation
  • Factor scores can be used to identify which smart beta ETFs offer the best ratio of factor exposure per dollar in fees

INTRODUCTION

Buying a Big Mac at McDonald’s in Basel, Switzerland, costs CHF6.50, compared with only CHF4.40 in Germany, which explains why the German McDonald’s locations close to the city are highly popular with Swiss nationals. Paying less for the same good is often worth the short drive across the border.

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