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A Little-Noticed Kink in Smart-Beta ETFs Might Blindside Buyers

  • Additional factors creep into single-factor smart-beta ETFs
  • Funds marrying active and passive traits grow in popularity
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Turns out, one of the hottest parts of the $2.3 trillion ETF industry has a little-noticed quirk with the potential to blindside users.

Fund titans like BlackRock Inc. and Invesco Ltd. have amassed billions in assets by selling their clients on smart-beta ETFs. By using computer models instead of human judgment to target strategies like growth or low volatility, they aim to combine the best of both the active and passive worlds. The pitch has helped swell assets in the ETFs by almost $30 billion this year.