Morningstar UK Limited, a subsidiary of Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published a research report, “Assessing the True Cost of Strategic-Beta ETFs.”
Authored by Morningstar’s Passive Funds Research team, the report examines the differences in costs between strategic-beta exchange-traded funds (ETFs) and their more ordinary passive peers. The study assesses differences in fees, replication costs, and trading costs for 100 European-domiciled strategic-beta ETFs and 77 market-cap-weighted ETFs linked to some of the most widely used broad equity benchmarks.
Morningstar defines strategic beta as a class of index-tracking investment products that seek to either improve performance or alter the level of risk relative to a standard benchmark. Strategic beta represents a fast-growing middle ground on the active-to-passive investment spectrum. As at 31 December 2015, there were 950 strategic-beta exchange-traded products representing approximately US$478 billion in assets worldwide.
“Investors in strategic-beta ETFs, like those investing in actively managed funds, are more concerned with performance and the intricacies of a specific strategy than they are with cost,” Hortense Bioy, CFA, Morningstar’s Director of European Passive Funds Research, said. “While this is understandable, they should keep in mind that there is a wide disparity in the fees charged by strategic-beta funds, even by those offering exposure to similar strategies, and that low-cost funds have greater odds of future success.”
Key findings of the research report include: