Factor ETFs; The best of smart beta

Smart Beta is an investment strategy that is diversified and specific at the same time. The idea is that with a little bit of adjustment, it is possible to somewhat separate market leaders and laggards. There are many ETFs out there that try to beat the market, and some of them actually do in a more or less consistent way. It is very important to go through each ETF's prospectus and understand the strategy because some of them sound very good but in fact lag the market. The last thing that you want to do is to buy an ETF that performs worse than the market itself. Let's go through some of these strategies to see if we can find one that is worth your attention.

iShares Factor ETFs

In an ever expanding world of ETFs, iShares by BlackRock has made a name for itself. It is one the largest providers of ETFs and its S&P 500 index ETF "IVV" has more than $130 billion in assets.

The Factor ETF group that iShares provides are:

iShares Edge MSCI USA Momentum Factor ETF ( MTUM )
iShares Edge MSCI USA Quality Factor ETF ( QUAL )
iShares Edge MSCI USA Size Factor ETF ( SIZE )
iShares Edge MSCI USA Value Factor ETF ( VLUE )

iShares Edge MSCI International Momentum Factor ETF ( IMTUM )
iShares Edge MSCI International Quality Factor ETF ( IQLT )
iShares Edge MSCI International Size Factor ETF ( ISZE )
iShares Edge MSCI International Value Factor ETF ( IVLU )

iShares Edge MSCI USA Minimum Volatility Factor ETF ( USMV )
iShares Edge MSCI USA Multifactor Large Cap ETF ( LRGF )
iShares Edge MSCI USA Multifactor Small Cap ETF ( SMLF )

iShares Edge MSCI International Multifactor Small Cap ETF ( ISCF )
iShares Edge MSCI Multifactor Emerging Markets ETF ( EMGF )

Here is what I understand from the Product Brief from iShares; VLUE and SIZE perform best coming off a recession. MTUM continues through the bull market and QUAL is best for market slowdown. At the time of this article, MTUM is one of the best performing ETFs; it is up 30% YTD and is one of my favorites. Here you can find a complete list of smart beta ETFs from iShares.

Fidelity Factor ETFs
Another provider of Factor ETFs is Fidelity, which is a well known and respected financial institution. Here is a list of their Factor ETFs:

Fidelity Core Dividend ETF ( FDVV )
Fidelity Dividend ETF for Rising Rates ( FDRR )
Fidelity Low Volatility Factor ETF ( FDLO )
Fidelity Momentum Factor ETF ( FDMO )
Fidelity Quality Factor ETF ( FQAL )
Fidelity Value Factor ETF ( FVAL )

You can find more information about Fidelity's Factor ETFs here.

Powershares Factor ETFs

Probably the most well-known Powershares ETF is QQQ, which is a modified market-cap-weighted index of 100 NASDAQ-listed stocks and it has more than $53 billion in assets. They offer a long list of Factor ETFs, some of which is highlighted below:

S&P 500 Low Volatility Portfolio ( SPLV )
DWA Momentum Portfolio ( PDP )
S&P 500 Momentum Portfolio ( SPMO )
DWA NASDAQ Momentum Portfolio ( DWAQ )
S&P 500 Quality Portfolio ( SPHO )
S&P 500 Enhanced Value Portfolio ( SPVU )
S&P 500 High Dividend Low Volatility Portfolio ( SPHD )

You can find a complete list of smart beta ETFs from Powershares here.

This was only a few examples of smart beta ETFs out there. At the end of the day, you need to do your own research to see which one fits your strategy. Also remember that these are more active strategies; some of smart beta ETFs will perform poorly during market turbulence, and you might need to rebalance or change your allocations. So, if you are a buy and hold investor you might be better off with a traditional S&P 500 index. But if you like to play a more active role in your investing, Factor ETFs might offer good opportunities, specially during a strong bull market. 

Disclosure: At the time of this publication I am long MTUM. This publication is NOT intended as financial advice. Published statements are opinions only.