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ETF Specialist

Everything You Need to Know About Strategic-Beta ETFs

Much of what investors need to know about strategic-beta funds has already been learned from decades of examining active strategies and how investors vet them and put them to use.


A version of this article was published in the March 2016 issue of Morningstar ETFInvestor. Download a complimentary copy of ETFInvestor here.

Strategic beta, or so-called smart beta, is a new form of active management. Strategic-beta exchange-traded funds and mutual funds are linked to indexes that make one or more bets, of varying degrees of magnitude, against the broad market-cap-weighted benchmarks that are their starting point--more purely passive "market" exposures. These wagers are embedded in the funds' index methodologies, which are their active playbook. But unlike conventional active managers, strategic-beta funds cannot make adjustments. With respect to the ongoing implementation of the strategies built into their benchmarks, they are strictly passive.

Ben Johnson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.