Good article. The emergence of smart beta ETF strategies have enabled an industry to grow up in which both retail and institutional investors are being miss-sold products using back-tests which are the largely product of data mining exercises.
Those back-tests are packaged up by major index providers, for a lucrative fee, to give the small ETF providers the marketing benefit of being associated with a trusted major brand. By claiming to simply "track the index", the ETF provider benefits from a loophole which enables them to present hypothetical performance as akin to a real money track record.
Unsurprisingly, the out of sample performance of many of these products has been disastrous.
Good article. The emergence of smart beta ETF strategies have enabled an industry to grow up in which both retail and institutional investors are being miss-sold products using back-tests which are the largely product of data mining exercises.
Those back-tests are packaged up by major index providers, for a lucrative fee, to give the small ETF providers the marketing benefit of being associated with a trusted major brand. By claiming to simply "track the index", the ETF provider benefits from a loophole which enables them to present hypothetical performance as akin to a real money track record.
Unsurprisingly, the out of sample performance of many of these products has been disastrous.
A scandal waiting to happen.