Mix styles when investing in smart-beta funds, say analysts

Like active funds, smart-beta funds carry the risk of underperformance

Around 17 smart beta or factor-based exchange-traded funds (ETFs) and index funds have become available, based on themes like equal weight, quality, alpha, value, momentum, low volatility, and alpha plus low volatility.

With the number of funds rising, investors face two challenges in choosing a fund. One, most have short track records. And two, there is considerable rotation in the performance of smart-beta indices.

Smart-beta for outperformance

Investors who don’t want the risk of underperformance by a fund manager opt for pure passive funds, which give them returns equivalent to broad-based market indices. Later, while still not wanting fund manager intervention, they desire