Intelligent ETF


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."


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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.

  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 ...
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