Is ‘Smart’ Beta Just Expensive Beta?
Are ‘smart’ beta funds good for investors? So far, the answer is no.
Over at Schwab in their Intelligent Portfolios they make extensive use of Smart Beta (fundamentally weighted) ETFs
Why do you include both market-cap and fundamentally weighted ETFs in your portfolios?
Fundamentally weighted and market-cap weighted ETFs both track indexes, but their performance can vary widely.
Given their unique construction, fundamentally weighted ETFs can complement traditional ETFs in a portfolio. While traditional market-cap ETFs often provide low cost diversification, fundamentally weighted ETFs provide a value tilt in the portfolio construction. To help ensure that our portfolios are truly diversified, Schwab Intelligent Portfolios invests in both types of ETFs with the goal of helping to reduce volatility and provide better risk-adjusted results over time.
Bottom line: the portfolios of Robo Advisors differ tremendously. I would assume few investors have the skills to evaluate the pros and cons of the growing number of Robo Advisors. Will human advisors who now advise on which robo portfolio to choose...or will independent advisors only recommend the robo advisor they can offer to clients (advisors linked to the Schwab advisor platform recommending the Schwab portfolio and Fidelity to Fidelity) ?
As I expected we are now beginning to see newsletters and articles evaluating the short term performance of robo advisor portfolios. I have little doubt that will lead to investors swapping between robo advisors based on short term performance just as they have done with mutual funds and ETFs..defeating the whole purpose of these programs.
At the end of the day will investors be better off not only with a human advisor but unlike with the robo advisors not wedded to a one size fits all portfolio allocation?
The robos moderate portfolios based on risk appetite but then put them into a one size fits all portfolio. A human advisor might lower the exposure to --for instance emerging markets-- in a portfolio of a low risk tolerance portfolio along with altering the stock bond allocation, in addition to tax management across all accounts including those not managed by the advisor such as 401ks,
As I expected we are now beginning to see newsletters and articles evaluating the short term performance of robo advisor portfolios. I have little doubt that will lead to investors swapping between robo advisors based on short term performance just as they have done with mutual funds and ETFs..defeating the whole purpose of these programs.
At the end of the day will investors be better off not only with a human advisor but unlike with the robo advisors not wedded to a one size fits all portfolio allocation?
The robos moderate portfolios based on risk appetite but then put them into a one size fits all portfolio. A human advisor might lower the exposure to --for instance emerging markets-- in a portfolio of a low risk tolerance portfolio along with altering the stock bond allocation, in addition to tax management across all accounts including those not managed by the advisor such as 401ks,
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