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Simple stock market indices such as the S&P 500 don’t give you equal weight exposure to all companies. Instead, they are capitalization weighted (“cap weighted” for short), meaning the largest companies get the most weight in the index and the smallest get the least weight. So if you invest in an ETF tracking a cap weighted index, you’re mainly just invested in its largest companies.

‘Smart beta’ refers to using other quantitative metrics to sort and weight companies in an index, to better position the index to benefit from outperformance.

We use two smart beta metrics in our ETF portfolios - momentum and low volatility - that for decades have been persistent drivers of better risk-adjusted performance.

Low volatility

Volatility is generally measured as the standard deviation of a stock’s past daily price changes. Research has shown that in volatile or steeply falling markets, stocks with low past daily price volatility tend to sell off less than the broader stock market in the future.

Read more from Invesco on low volatility in stocks

The following ETFs track indices designed to select and weight stocks with the least price volatility over the past 6 months. We use these ETFs in our passive and tactical portfolios to give our clients exposure to low volatility stocks:

  • SPLV: Invesco S&P 500 low volatility stock ETF

  • IDLV: Invesco S&P International developed market low volatility stock ETF

  • EEMV: iShares MSCI emerging markets minimum volatility stock ETF

Momentum

Momentum is generally measured as a stock’s past 6- or 12-month price change relative to all other stocks. Research has shown that stocks with strong momentum over the past 6 or 12 months have tended to continue that momentum into the next 6 or 12 months.

Read more from MSCI on momentum in stocks

The following ETFs track indices designed to select and weight stocks with the strongest past 6 months momentum. We use these ETFs in our passive and tactical portfolios to give our clients exposure to strong momentum stocks:

  • MTUM: iShares MSCI USA momentum factor ETF

  • IMTM: iShares MSCI International momentum factor ETF

See MTUM & SPLV past 5-year performance relative to the S&P 500 US large cap index →

See IMTM & IDLV past 5-year performance relative to the MSCI International developed market index ETF →


Our Smart Beta passive portfolio components

Equities

Government bonds

U.S.

International

U.S.

International

  • MTUM: iShares MSCI USA momentum factor ETF

  • SPLV: Invesco S&P 500 low volatility stock ETF

  • IMTM: iShares MSCI International momentum factor ETF

  • IDLV: Invesco S&P International developed market low volatility stock ETF

  • EEMV: iShares MSCI emerging markets minimum volatility stock ETF

  • MUB: iShares National municipal bond ETF

  • VTIP: Vanguard Inflation-protected treasuries ETF

  • SHY: iShares 1 to 3 year treasuries ETF

  • BNDX: Vanguard Total International investment grade government bond ETF

  • EMB: iShare JP Morgan emerging market bond ETF


Optional Cap-weighted passive portfolio components

We understand that some of our customers may instead seek the cheapest possible diversified passive ETF portfolio, even if it means giving up the potential for better risk-adjusted performance. For that reason we also offer cap-weighted passive portfolios:

Equities

Government bonds

U.S.

International

U.S.

International

  • VTI - Vanguard total U.S. stock market ETF

  • VEA - Vanguard non-U.S. developed markets stocks ETF

  • VWO - Vanguard emerging markets stocks ETF

  • MUB: iShares National municipal bond ETF

  • VTIP: Vanguard Inflation-protected treasuries ETF

  • SHY: iShares 1 to 3 year treasuries ETF

  • BNDX: Vanguard Total International investment grade government bond ETF

  • EMB: iShare JP Morgan emerging market bond ETF