Analysis of the Performance between Smart Beta Strategies with Active and Passive Managed ETFs

The Exchange Traded Fund (ETF) industry has gained much attractivity among investors in the last decade but remains still a shady market with some technicities. This research article aims to address the origin of this concept and its recent tendencies by describing the main features and theoretical framework that surround it. To address the main research question, we will establish a comparative study between Smart ßeta ETF with actively managed ETF instruments and passive ETF instruments to capture an outperformance made by the Smart beta strategies. The primary approach for this research is to compute the overall daily returns over a five-year timeframe. Several ETF instruments will complete our study group with eight different ETF funds from each investment style compared to a common benchmark. The overall risk-adjusted returns are computed according to the three main ratios: Sharp, Sortino, and Jensen ratio. We came to a twofold conclusion: US large-capitalization equity Smart Beta funds do not offer a risk-adjusted performance superior to active nor passive strategies. Nonetheless, disagreeing with the academic literature, emerging markets equity smart-beta funds managed to deliver excess returns higher than the other type of investment funds and by a wide margin