SUMMARY
- Smart beta ETFs can be compared via a factor score, which relates fees to the factor exposure
- Value-focused ETFs in the US show a wide range of factor scores
- Large firms offer more attractive factor scores, but largely due to lower fees
INTRODUCTION
Beta is like ice cream and comes in many flavors. Broadly we can categorize it into the following four types:
- Plain beta: Market capitalization-weighted benchmark indices like the S&P 500 or FTSE 100.
- Smart beta: Indices with tilts to factors backed by academic and practitioner research. The most established factors in equities are Value, Size, Momentum, Low Volatility, and Quality.