Case Detail

Case Summary

Smart Beta Exchange-Traded Funds and Factor Investing

Case Number: 5-417-752, Year Published: 2018

HBS Number: KE1068

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Authors: Phillip Braun

Key Concepts

Financial Analysis, Financial Instruments, Financial Management, Financial Planning, Investment Management, Smart Beta Exchange-Traded Funds, Exchange-Traded Funds, Factor Investing, Fama and French Five-Factor Model


It was early 2015 and executives in iShares' Factor Strategies Group were considering the launch of a new class of exchange-traded funds (ETFs) called smart beta funds. Specifically, the group was considering smart beta multifactor ETFs that would provide investors with simultaneous exposure to four fundamental factors that had shown themselves historically to be significant in driving stock returns: the stock market value of a firm, the relative value of a firm's financial position, the quality of a firm's financial position, and the momentum of a firm's stock price. The executives at iShares were unsure whether there would be demand in the marketplace for such multifactor ETFs, since their value added from an investor's portfolio perspective was unknown. Students will act as researchers for iShares' Factor Strategies Group and conduct detailed analysis of Fama and French's five-factor model and the momentum effect, smart beta ETFs including multifactor ETFs, and factor investing with smart beta ETFs to help iShares make its decision.

Learning Objectives

After reading and analyzing the case, students will be able to: describe Fama and French's five-factor model and the momentum effect; characterize smart beta ETFs, including multifactor smart beta ETFs; forecast the marketplace demand for multifactor smart beta ETFs; analyze portfolio returns on a variety of factors; and compare traditional asset class investing to factor investing within a Markowitz mean-variance framework.

Number of Pages: 20

Extended Case Information

Teaching Areas: Finance

Teaching Note Available: Yes

Geographic: United States

Industry: Securities & investment banking

Organization Name: BlackRock

Organization Size: Large