Practical Applications of Intelligent Selection of Smart Beta Mutual Funds

Practical Applications Summary

In Intelligent Selection of Smart Beta Mutual Funds, which appeared in the Summer 2019 issue of The Journal of Wealth Management, C. Edward Chang of Missouri State University, Thomas M. Krueger of Texas A&M University-Kingsville, and Cedric Tresor Mbanga of Missouri State University investigated two research questions: 1) whether smart-beta mutual funds (SBFs) have outperformed the market in recent years and 2) whether investors can outperform their peers by limiting the money spent on SBF selection. The authors found that, in general, SBFs have not outperformed the market on a risk-adjusted basis; the increased risk offset the enhanced returns. However, they did find that investing in SBFs with lower expense ratios improved performance. Based on these findings, the authors suggest that investors limit the money spent on adding SBFs to their portfolios.

TOPICS: Mutual fund performance, factor-based models, performance measurement