This infographic discusses smart beta strategies and highlights equal-weighted and low volatility strategies as having considerable potential. It shows that over 20 years, an equal-weighted S&P 500 had higher risk-adjusted returns than the market cap-weighted S&P 500. Low volatility strategies achieved similar or higher returns with lower volatility across various asset classes over 20 years. While these strategies face potential pitfalls like higher turnover, they benefit from capturing other anomalies and diversifying across investment styles.

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