Abstract
In a previous working paper I analyzed the performance of pairs-trading from a universe of ETF stocks. This paper uses a similar approach but considers long-only strategies which belong to the general group of smart beta strategies: Alternative weighting schemes of the stocks and subset selection according to volatility, beta or momentum. One selects a smart sub-ETF. If the original ETF is already smart the subset is a sort of smart ETF of the second order. The working paper shows that the question of different weighting-schemes is over-weighted. It answers also the FAQ about the impact of different re-balance periods. The risk-adjusted performance can be improved by either low-volatility or small-beta subsets. Momentum and Mean-Reversal works for some but not all ETFs. Revision 1 adds the results for idiosyncratic volatility.
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