Research shows that certain traits (“factors”) can lead stocks to outperform the market over the long run. “Smart beta” (see below) exchange-traded funds (ETFs) aim to exploit this. They’ve proved popular with investors, who see them as a logical advance on index trackers (why track the benchmark when you can build a better index)? Yet recent turbulence in ETFs tracking one factor – “low volatility” (also known as low vol or minimum volatility) – highlights just how important it is to keep an eye on what’s actually going in your funds.
The idea behind low-vol [...]