Fund managers war over smart-beta ETFs

Tokyo

TRYING to time the market is a dumb idea. That in a nutshell is Cliff Asness' opening salvo into an escalating war of words over smart-beta exchange-traded funds (ETFs), triggered in February when one of the inventors of the approach said that many had become too expensive. Mr Asness, co-founder of AQR Capital Management, joins other theoreticians jumping into the fray, which goes to the heart of a strategy that bridges active and passive management.

While the debate has an academic ring, a lot is riding on who is right. Smart-beta styles underlie about one in five ETFs globally with an estimated US$400 billion under management, and if they plunged, millions of investors would be burned. The technique seeks to soup up index returns by ranking companies not by size but other properties or "factors" - such as what they earn or pay in dividends.