Abstract
This research will discuss the origins of the smart beta and its subsequent trends by explaining its primary characteristics and theoretical background. To address the primary research question, we will conduct a comparative analysis of Smart beta ETFs, actively managed ETFs, and passive ETFs in order to quantify the outperformance of Smart beta strategies. Our research group will be completed by many ETF instruments, with eight distinct ETF funds representing each investment strategy being compared to their respective selected benchmark. The Sharpe, Sortino, and Jensen ratios are used to calculate the overall risk-adjusted returns. We came to two distinct conclusions: US large-capitalization equity Smart Beta funds do not outperform active or passive strategies in terms of risk adjusted returns. Despite this, and contrary to academic research, emerging markets equity smart beta funds had significantly larger excess returns than other types of investment funds.
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