Financial Risk and Better Returns through Smart Beta Exchange-Traded Funds?

Smart beta exchange-traded funds (SB ETFs) have caught the attention of investors due to their supposed ability offer a better risk–return trade-off than traditionally structured passive indices. Yet, research covering performance SB ETFs benchmarked traditional cap-weighted market indices remains relatively scarce. There is lack empirical evidence enforcing this phenomenon. Extending work Glushkov (“How are “Smart Beta” ETFs? …”, 2016), we provide quantitative analysis 145 EU-domicile over 12 year period, from 30 December 2005 31 2017, belonging 9 sub-categories. We outline which criteria were retained such that investigated had at least consecutive monthly returns data. consider three models: Sharpe–Lintner capital asset pricing model, Fama–French three-factor and Carhart four-factor discussed in literature review sections, order assess factor exposure each fund market, size, value, momentum factors, according pertinent model. In do so, sample benchmarks underwent series numerical assessments aim explaining both risk. The measures chosen Annualised Total Return, Volatility, Sharpe Ratio, Relative Return (ARR). Of sub-categories achieved greater ARRs, only two categories, equal momentum, able certify risk-adjusted returns.