Assessing the True Cost of Strategic-Beta ETFs

Abstract

The report examines the differences in costs between strategic-beta (smart beta) exchange-traded funds (ETFs) and their more ordinary passive peers. Cost is an important consideration that isn’t always at the forefront of investors’ minds when selecting strategic-beta funds. The study assesses differences in fees, replication costs, and trading costs for a selection of European-domiciled, strategic-beta ETFs and market-cap-weighted ETFs linked to some of the most widely used broad equity benchmarks, including the S&P 500, MSCI World, and MSCI Emerging Markets indexes. The authors find a wide disparity in the fees charged by strategic-beta funds and that their total cost of ownership is, on average, significantly higher.