Smart Beta Rankings Can Finally Answer Which Large Cap ETFs To Buy

After our inaugural article on a new way to look at ETFs, “Introducing Smart Beta Ranking – A More Intuitive Roadmap for Value Investing,” we decided to apply this same framework to U.S. Large Cap ETFs .

Our new Smart Beta Rankings offer a transparent and simple way to start investing in ETFs. Up until now, there hasn’t been a clear and systematic methodology investors could use when comparing different types of ETFs. While investors are currently forced to blindly pick and choose ETFs, without knowledge of how they’re constructed or how they compare to each other, Q.ai’s new Smart Beta Scores is changing the game.

With Smart Beta Scores, investors don’t have to focus on assets under management (AUM$), expense ratios or fund flows — none of which explain ETF performances. We think it makes sense to focus on what really matters: the “betas” that are really driving the performances of the ETFs.

Using the same methods we already use to measure mutual funds and other traditional investment funds, we measure ETFs. We’ve created a unique portfolio attribution system based on our AI factor models to unpack the risk measures behind ETFs’ performances. These measures include small-cap stocks exposure, interest rate exposure, exposure to oil, etc. From there, we measure whether an ETF is overweight, neutral, or underweight in our factor groups. And,  based on exposures to particular factor groups, we rank them in various categories.

With Smart Beta Scores, investors can have transparency and trust in the ETFs in which they invest.

Our top-rank U.S. Large Cap ETFs is First Trust Large Cap (FEX)
FEX
, which is overweight in low volatility momentum and quality value factors, and neutral in technical and size factors. FEX is one of the top-performing ETFs YTD +5.25 percent, outperforming the S&P 500 by over one percent. It’s one of the relatively smaller ETFs with $1.04b AUM$, and it’s one of the most expensive ETFs from a fee perspective at 0.61 percent.

The worst-ranked U.S. Large Cap ETF is Morningstar U.S. Large Cap (JKD)
JKD
.  It’s underweight in low volatility momentum and quality value factors, and it’s neutral in technical and size factors. It’s one of the worst performers in the category +1.71 percent YTD, and it’s one of the cheapest ETFs in terms of fees at 0.20 percent. It’s also one of the smallest ETFs in terms of AUM$ with $846.83mm.

Our Smart Beta ETF Rankings are updated every two weeks on Forbes AI Investor.