While the term smart beta may reek of marketing buzz words, the reality is that smart-beta funds may actually be really smart for your portfolio. Essentially, smart-beta exchange-traded funds use various fundamental screens — searching for factors like sales, earnings, book value, dividends or cash flows — to create or improve upon traditional indices. The hope is that by focusing on these factors, the new smart-beta ETFs will ultimately outperform market-cap-weighted funds like the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
However, as the movement has caught fire, there’s a slight problem with smart beta. There are literally hundreds of funds associated with the term. According to website ETFdb.com, there are over five hundred, in fact.
This poses a problem for investors looking to craft a smart-beta portfolio to score some higher returns. The sector is starting to look like a potential minefield. How do you know which smart-beta ETFs are actually smart for your portfolio?
Luckily, here at InvestorPlace we’ve done the digging for you. Here are three smart-beta ETFs that all investors have to own.