Smart Beta

Factor based investing with ETFs

Smart beta strategies seek to capture broad, persistent drivers of returns. Combining elements of both traditional passive and traditional active investing, smart beta strategies seek to out-perform traditional index strategies by targeting intuitive and well understood investment ideas in a rules based manner.

“Factors are the language of investing that everyone should be speaking. Smart beta is the vehicle to deliver factor investing.” Dr Andrew Ang, Head of BlackRock’s Factor Based Strategies Group

iShares Smart Beta ETFs rewrite the rules of traditional index investing in an effort to deliver targeted outcomes that can help investors reduce risk, generate income, or potentially enhance returns. The ETFs are designed to capture broad, persistent drivers of returns, take advantage of economic insights, and improve diversification.


FactorType of CompanyHow to Measure
Quality Quality Financially healthy firms Higher return on equity, earnings consistency, lower debt to equity
Value Value Inexpensive stocks Lower P/E and P/B
Momentum Momentum Trending stocks Price appreciation
Size Size Smaller companies Lower market cap

BlackRock takes a factor-based view to smart beta investing, deliberately targeting value-creating investment ideas, such as finding bargains (value), following trends (momentum) or seeking safety (minimum volatility). These time-tested ideas have been present in actively managed portfolios for decades, and are now available through smart beta strategies, often at a fraction of the cost of active management. Ultimately, smart beta strategies seek to generate outcomes for investors, such as improving returns, enhancing diversification or reducing unwanted risks.

Smart beta is more than simply a fund or strategy, it's a style of investing focused on the drivers of risk and return.