Which Smart Beta Strategies Work?

1. SMART BETA INFOGRAPHIC
CFA TORONTO, ROUND TABLE
DEREK POLCYN, CFA, FRM, CIM, M.A (ECON)

2. GROWTH OF SMART BETA ETFs
SOURCE: BLOOMBERG
0.0
0.5
1.0
1.5
2.0
2.5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Assets in US ($ Trillion)
Smart Beta ETFs All ETFs

3. MANY STRATEGIES BUT TWO OFFER
CONSIDERABLE POTENTIAL
o EQUAL-WEIGHTED
o LOW VOLATILITY
o GROWTH
o SMALL CAP
o FUNDAMENTALLY WEIGHTED
o MULTIFACTOR
o MOMENTUM

4. EQUAL-WEIGHTED STRATEGY
SOURCE: S&P DOW JONES INDICES
0
2
4
6
8
10
12
14
16
18
Total Return Stdev
Risk and Returns (20 Years)
S&P 500 EW S&P 500
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Risk Adj Returns (20 Years)
S&P 500 EW S&P 500

5. LOW VOLATILITY STRATEGY
SOURCE: S&P DOW JONES INDICES
0
2
4
6
8
10
12
14
16
US Large-Cap US Mid-Cap US Small-Cap Developed
Markets
Emerging
Markets
Total Returns (20 Years)
Low Volatility Benchmark

6. LOW VOLATILITY STRATEGY – CONT’D
SOURCE: S&P DOW JONES INDICES
0
5
10
15
20
25
30
US Large-Cap Us Mid-Cap US Small-Cap Developed
Markets
Emerging
Markets
Standard Deviation (20 Years)
Low Volatility Benchmark

7. EXCESS RETURNS VS. S&P 500, 1967-2011
SOURCE: RESEARCH AFFILIATES / COMPUSTAT
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
S&P 500 Low Volatility S&P 500 Equal Weight

8. EFFICIENT FRONTIER
Return
Volatility
S&P
500
EW
LOW
VOL

9. POTENTIAL PITFALLS AND EXPLANATIONS
o HIGHER TURNOVER
o CAPTURE OF VALUE AND SMALL CAP ANOMALIES
o BENEFITS OF DIVERSIFICATION BY INVESTMENT STYLE