Passive Investment Strategies: Analysis of Smart Beta ETFs Performance

Abstract

This End of Master Project examines the performance and efficiency of forty equity U.S. domiciled ETFs between 2014 and 2017. The objective is to analyse the efficiency of the Smart Beta ETFs to determine whether it is a more profitable investment than traditional Market Cap ETFs for a long-term period. In doing so, one aims to draw conclusions about the level of risk of these investment vehicles and determine whether it is an adequate product fitting every type of investor. The comparative analysis shows that on a general basis, Smart Beta ETFs should be consider passive investment products and do have a better performance than traditional Market Cap ETFs for a long-term period. However, the analysis captures a higher efficiency for Market Cap ETFs compared to Smart Beta ETFs based on the risk-adjusted return indicators. Hence, traditional ETFs have higher returns for the same level of risk.