Smart beta exchange-traded fund popularity is soaring as investors look for new ways to beat the market. Funds pulled in $43 billion in assets last year alone, according to Bloomberg, and are breaking records so far this year.
But some critics are questioning whether these newfangled funds are really as smart as they seem. They can be costlier, riskier and more complex than plain-vanilla ETFs that simply mirror an index such as the S&P 500, say critics.
An offshoot of value investing, these smart beta funds are meant to right index efficiencies that are usually tilted toward big stocks with outsized market capitalizations, like Apple or Exxon Mobil. When one of these titans' stock price slides, index performance can get pushed down faster than when a small stock falls, because they make up a smaller portion of the index.