Smart, Strategic Beta & Multi-Factor ETFs

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Shakespeare
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by Shakespeare »

Manulife Investments Launches Multifactor ETFs sub-advised by Dimensional Fund Advisors Canada ULC

[quote] Manulife Exchange Trade Funds (ETFs) have closed their initial offering of units and will begin trading on the Toronto Stock Exchange today. Manulife Investments will offer multifactor ETFs sub-advised by Dimensional Fund Advisors Canada ULC.

Code: Select all

[edited]
Manulife Multifactor Canadian Large Cap Index ETF
MCLC
Canadian Large Cap
0.40%
[etc]


The indices that these ETFs are designed to track were developed by Dimensional, a pioneer of multifactor investing, using their time-tested multifactor approach and taking into account efficient implementation of those strategies into indices which could be passively managed, using Dimensional's proprietary Index MemoryTM* technique.[/quote]
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by twa2w »

I saw the initial announcement several months ago but there was almost no info available so thanks for posting this.

I was a little disappointed when I checked DFA's website and saw how poorly most of their strategies have worked after all the hype I had heard about them. Maybe their value factor approach just hasn't worked as well in the market environment over the last few years.

Cheers
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by DenisD »

I assume the US and International ETFs are the same as the John Hancock ETFs which were started up to a year and a half ago?
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by kenwood »

I came across the document below. The figure on the first page suggests which 'smart beta' strategy to use relative to the business cycle. For example, if we are currently in a mid cycle slowdown, the figure recommends a momentum strategy. It cites a few publications back in the 90s and one in 2006 as reference. Are there any more recent studies to support the thesis? Intuitively the figure appears to make sense but I would like to see more data to confirm.

https://www.ishares.com/us/literature/p ... -brief.pdf
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by longinvest »

kenwood wrote: 07 Oct 2017 09:17 I came across the document below. The figure on the first page suggests which 'smart beta' strategy to use relative to the business cycle. For example, if we are currently in a mid cycle slowdown, the figure recommends a momentum strategy. It cites a few publications back in the 90s and one in 2006 as reference. Are there any more recent studies to support the thesis? Intuitively the figure appears to make sense but I would like to see more data to confirm.

https://www.ishares.com/us/literature/p ... -brief.pdf
smart, strategic, and multi-factor marketing. :wink:

The document is written by the company selling the funds.
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by Quebec »

The smart beta marketing and ETF creation continues unabated. You can screen ETFs on the Ishares Canada (Blackrock) website by clicking on a "smart beta" button, and you get 40 ETFs with a range of factor (low vol, etc.), alternative indexing, multi-factor and dividend strategies. Compare this with 'only' 30 'core' equity ETFs, the ones most people should get (including XIU, XUS, XEF, XAW, and the asset allocation ETFs).

Even Vanguard Canada has launched smart beta products, although they just call them "active" ETFs.

So I thought finiki needed a smart beta article to explain what these products are, the origin of the name, and list potential issues with them. Enjoy!
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by Norbert Schlenker »

Quebec wrote: 19 Feb 2020 10:17 So I thought finiki needed a smart beta article.
:thumbsup:
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by AltaRed »

Thank you for the article. Well written and concise. Now I have a reference to link too in appropriate posts.
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by ig17 »

Quebec wrote: 19 Feb 2020 10:17 So I thought finiki needed a smart beta article to explain what these products are, the origin of the name, and list potential issues with them. Enjoy!
Very well done. :thumbsup:


Consider adding an illustration :wink:

Image

Right here, under potential issues:
* factors may under-perform over long periods, which could lead to behavioral issues
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Quebec
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by Quebec »

Thanks for the positive feedback guys. I spent too many hours in that rabbit hole, but hopefully it will help people figure out what "smart beta" means. According to the anniversary notice that was up until a few days ago, finiki gets "around a quarter million viewers and over a million pages viewed" every year. So that's certainly a motivation for maintaining it and improving it, but a few virtual slaps in the back can't hurt either... :)

A reminder that anybody is welcome to help finiki, we always need more contributors.
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by ig17 »

Darkest Quant Fears Ring True in $1 Trillion World of Smart Beta
https://www.bloomberg.com/news/articles ... smart-beta
It’s every quant’s nightmare: Trades that look good on paper break down in the real world. And in the $1 trillion business of smart-beta investing, it’s happening on an industrial scale.

According to a new study, hundreds of strategies that showed significant outperformance in backtesting are failing to live up to their hype once they are packaged up and sold as exchange-traded funds.

The average above-market return for smart-beta strategies is 2.77% per year before they are listed. That flips to a loss of 0.44% after fees once they actually become ETFs, according to researchers Yang Song at the University of Washington and Shiyang Huang and Hong Xiang at the University of Hong Kong.

“Stellar performance only exists in backtests and has no indicative power for ‘real’ performance,” the authors wrote. “We find strong support that data mining in backtests accounts for the performance deterioration.”

In other words, ETF sponsors are finding strategies that worked brilliantly according to their historic data -- but which aren’t working now.
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by Quebec »

Wow. I've added the ssrn article to the finiki page on smart beta, under "potential issues".
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by poedin »

Another reason for broad-based index ETFs and keeping it simple?
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by BillCoin »

Factor Performance Across Business Cycles

https://thebamalliance.com/blog/factor- ... ss-cycles/

Timing is everything. There is a recent Morgan Stanley study that exiting a recession like now value has lead in 17 of the last 17 recessions.
I do not have the link but I read it yesterday. Now we have the election and covid as additional obstacles.
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Re: Smart, Strategic Beta & Multi-Factor ETFs

Post by ig17 »

CFA Institute blog

Fama and French: The Five-Factor Model Revisited
... how well has Fama and French’s five-factor model explained returns over the decades? According to our analysis, only one factor has truly held up over all time periods.
...
RMW [the quality factor] is the single factor that has consistently delivered excess returns. Over all economic cycles since 1963, going long high quality stocks, or profitable firms, and shorting their low quality, unprofitable counterparts has been a great investment strategy. And the power of the factor has not diminished.
Obligatory disclaimer:
Of course, when Fama and French proposed their three-factor model, the hunch was that the SMB [small-cap] and HML [value] factors would consistently deliver value over time just as the RMW has. That hasn’t panned out. Whether RMW [quality] continues to be the gem factor that always delivers excess returns going forward remains to be seen.
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