“Smart beta” ETFs are set to upend traditional asset management, attracting assets from both active managers and passive indexes.

David Koenig, investment strategist at Russell Investments, which has created widely used smart beta indexes, explains: “Smart beta sits right in the middle of what has been considered beta and what has been considered alpha. Part of what had been attributed to manager skill can be accounted for by exposure to certain factors.” These include company size, stock price momentum and price to book value ratios that computers can efficiently discern.

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