One big difference between smart beta mutual funds and ETFs is that most individual investors can't buy into mutual funds. Most smart beta mutual funds on the market are designed for institutional clients and provide more active and improved smart beta. Value, momentum, dividend growth, growth, good quality, and low volatility are all factors that are taken into account instead. The managers of smart beta index funds try to make their funds look like these focused indexes, which sort stocks using custom screening methods. Because of this, most recent discoveries about smart beta have been included in the structure of ETFs. Let's look at smart beta mutual funds vs. smart beta ETFs.

MUTUAL FUNDS

Mutual funds such as PXTIX (PIMCO RAE Fundamental PLUS) and DSEEX (DoubleLine Shiller Enhanced CAPE I) are examples of popular smart beta investments.

PIMCO RAE Fundamental PLUS (PXTIX)

The objective of the PXTIX (PIMCO RAE Fundamental PLUS) investment strategy is to achieve the total return of the S&P 500 index in addition to a fundamental bond alpha approach. After one year, the total return is 7.15 percent. Dividends have a rate of return of 4.44 percent. Running it costs 85 basis points.

DSEEX (DoubleLine Shiller Enhanced CAPE I)

Regarding total return, the goal of the DSEEX (DoubleLine Shiller Enhanced CAPE I) is to achieve a higher level than that of the Shiller Barclays CAPE United States Sector Full Profit Index. Up to 5 percent of the fund's net assets could be put into defaulted corporate securities. The fund's total return over the past year is 8.25%. Dividends give a return of 2.19 percent. Fifty-four basis points were spent on expenses. If you have an IRA, the least you can put in is $5,000 instead of $100,000.

EXCHANGE-TRADED FUNDS

As of October 2018, the list of smart beta ETFs on ETFdb.com had 506 entries.

PTH (Healthcare Momentum Invesco DWA)

As of October 24, 2018, one of the best-performing smart beta ETFs over the past year is the PTH (Invesco DWA Healthcare Momentum ETF). This exchange-traded fund strives to replicate, as closely as possible, the holdings and returns of the Nasdaq-backed DW (Dorsey Wright) Healthcare Technical Selected Index. The Index picks 30 strong securities based on their smart beta scores and a custom screening method. The ETF is part of a group that looks for signs of strength and momentum in different United States sectors.

Smart Beta Mutual Funds: Disadvantages and Advantages

Like everything else, factor investing has both good and bad points. On the plus side, it is a pretty straightforward way to invest, and it is much easier to understand than the energetic style of investing. Second, since it is based on predetermined principles, it gives feelings and personal preference significantly less weight than other approaches.

The third benefit is that it helps people deal with risks. Diversifying a portfolio and making it less volatile can be done by putting together the right things. Lastly, a Smart Beta Fund usually has a much lower expense ratio than an actively managed fund. Smart Beta Funds are growing more popular across the globe. This tactic has resulted in investments totaling over a trillion dollars up to this point, and it does not seem to be scaled down any time shortly.

Smart Beta ETFs: Disadvantages and Advantages

A smart beta ETF may choose assets depending on factors such as the company's dividend growth, total earnings, volatility, and market capitalization. A smart beta ETF provides investors with various options for diversifying their holdings. Smart beta ETF strategies try to get results. They may assist investors in better matching the outcomes to their cost, risk, and other choices. Despite having higher cost ratios than actively managed funds, smart beta ETFs are often less expensive.

Since this is a new investment, there may not be many trades in small beta ETFs. It results in a lack of cash flow and makes it difficult for investors to exit their stakes. A smart beta ETF purchases stocks from an index that the ETF intends to hold. So, it costs more to trade. The fees for a smart beta ETF might be lower than those for actively managed funds, but you might not save much.

The Bottom Line

The world of smart beta is changing as more companies develop new products in mutual fund and ETF forms. Vanguard and Blackrock’s use of smart beta investments shows how valuable the strategy is. Vanguard and BlackRock have invested in the category to show its popularity. So, to improve portfolio performance, it's becoming more important to research to ensure that smart beta options are considered when looking into a new industry allocation.