Intelligent ETF

AAA

DEFINITION of 'Intelligent ETF'

An exchange-traded fund (ETF) that employs an active investment strategy based on a broad index, such as the S&P 500 or a sector-based index. The fund may choose to exclude some stocks within the index while increasing or decreasing the percentage weighting of other stocks. Most intelligent ETFs carry higher expense ratios than standard ETFs, as well as substantially higher turnover ratios.

Also known as a "smart ETF."

INVESTOPEDIA EXPLAINS 'Intelligent ETF'

Many of these "intelligent" or "smart" ETFs originated in the aftermath of the 2000-2002 bear market. Most intelligent ETFs look to avoid market capitalization-weighted portfolios, instead using internal metrics (or black box systems), such as company fundamentals or share performance.

Any ETF or index fund that does not replicate a base index is not passive investing, meaning that the fund's returns could deviate markedly from the returns of the benchmark index. Some intelligent ETFs have internal or proprietary indexes that are merely replicated within the ETF, but this is still active investing, and many of the internal indexes cannot be readily examined.

VIDEO

Loading the player...
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Biotechnology Industry ETF

    An exchange-traded fund that invests specifically in the rapidly ...
  3. Expense Ratio

    A measure of what it costs an investment company to operate a ...
  4. Passive Investing

    An investment strategy involving limited ongoing buying and selling ...
  5. Black Box Model

    A computer program into which users enter information and the ...
  6. Active Management

    The use of a human element, such as a single manager, co-managers ...
RELATED FAQS
  1. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  2. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  3. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  4. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>
  5. What is the formula for calculating the capital asset pricing model (CAPM) in Excel?

    The capital asset pricing model (CAPM) measures the amount of an asset's expected return given the risk-free rate, the beta ... Read Full Answer >>
  6. What is the formula for calculating return on investment (ROI) in Excel?

    Return on investment (ROI) measures the performance of an investment by measuring the gain from an investment and the cost ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    ETFs Vs. Index Funds: Quantifying The Differences

    If you are trying to choose between these two index-tracking investments, compare the costs.
  2. Mutual Funds & ETFs

    All Weather Investing With ETFs

    All Weather investment strategies can shield investors during the worst bear markets.
  3. Mutual Funds & ETFs

    Sharpen Your Portfolio With Intelligent ETFs

    Intelligent ETFs are innovative funds that pursue above-average returns and can be similar to actively managed mutual funds.
  4. Mutual Funds & ETFs

    3 Steps To A Profitable ETF Portfolio

    Achieve your investing goals with this simple process.
  5. Mutual Funds & ETFs

    Benchmark Your Returns With Indexes

    If your portfolio is always falling short, you may not be making an apples-to-apples comparison.
  6. Mutual Funds & ETFs

    Mutual Fund Or ETF: Which Is Right For You?

    Learn the differences between these investment products and how to take full advantage.
  7. Mutual Funds & ETFs

    Enhanced Index Funds: Can They Deliver Low-Risk Returns?

    These funds may look appealing. Find out whether they can really live up to all of their promises.
  8. Mutual Funds & ETFs

    Exchange-Traded Funds (ETFs)

    This vehicle combines the diversification of a mutual fund with the flexibility of a stock. Learn more about them here.
  9. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P 500 Trust

    Find out more about the SPDR S&P 500 ETF Trust, the characteristics of the exchange traded fund and the suitability of investing in the fund.
  10. Investing Basics

    Bitcoin ETFs: How Do They Work?

    ETFs offer a cost-effective, safe and hassle-free way to invest and trade bitcoins as stocks, without worrying about the security of digital wallets.

You May Also Like

Hot Definitions
  1. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  2. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  3. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  4. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  5. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  6. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!