Smart Beta ETFS versus traditional ETFS : European-domicile

Abstract

Smart Beta strategies knew a fast increase after the 2008 financial crisis. They have attracted a lot of investors and researchers by promising an outperformance of their benchmark and their traditional peers with lower risk. The term smart beta strategies is generally accompanied with Exchange-Traded Funds. The latter is an investment vehicle that offers the same characteristics of a stock with lower costs than mutual funds. There are a lot of papers about US-domiciled Smart Beta ETFs, however, there are few on European-domiciled Smart Beta ETFs. The aim of this thesis is to verify the performance of these instruments compared to the STOXX Europe 600 and to European-domiciled Traditional ETFs. In order to do so, we are going to use as performance measures the Information Ratio, the Treynor Ratio and the Generalized Treynor Ratio. Moreover, we will look at the performance factor allocation by using the Capital Asset Pricing Model and the European Four-Factor Model (Fama-French-Carhart). The performed analysis is for the period 2012-2017. Not all SB ETFs honor their promise of outperformance. We can say in our case Other ETFs, Growth ETFs and Multifactor ETFs offered the best results. The outputs of the performance measures computed showed that at a fund level and portfolio level traditional ETFs offer better results. The two regression models provided high adjusted R. The exposures are more significant for the market beta than for the other factors.