Comparing strategic beta, active and passive
Introduction
Investors have long known about two distinct investment choices: active and passive strategies. With the advent of strategic beta indexes, passive strategies are no longer clearly defined. Understanding the differences between traditional index, strategic beta and active management can help you evaluate whether combining these strategies may provide an additional level of diversification for your portfolio.
Investment strategy comparison
The table below highlights many of the differences across the passive/active spectrum.
| Traditional indexing | Strategic beta indexing | Active strategies | |
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| Overview |
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| Index construction |
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| Investment discipline |
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| Potential tax impact |
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| Costs and performance |
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This is not an all-inclusive list of the differences between strategies.
This is a generalization of the strategies and is being presented for illustrative purposes only.
Summary
Schwab Asset Management has long been a proponent of considering traditional indexing, strategic beta and active management as complements rather than competing strategies. We believe that combining these three strategies can add additional diversification to portfolios. The most important consideration for investors is to understand their investment objectives and how these different strategies can help.
What makes the Schwab Ariel ESG ETF different from traditional ETFs?
Traditional ETFs tell the public what assets they hold each day. This fund will not. This may create additional risks for your investment. For example:
- You may have to pay more money to trade the fund’s shares. This fund will provide less information to traders, who tend to charge more for trades when they have less information.
- The price you pay to buy fund shares on an exchange may not match the value of the fund’s portfolio. The same is true when you sell shares. These price differences may be greater for this fund compared to other ETFs because it provides less information to traders.
- These additional risks may be even greater in bad or uncertain market conditions.
- The ETF will publish on its website each day a “Proxy Portfolio” designed to help trading in shares of the ETF. While the Proxy Portfolio includes some of the ETF’s holdings, it is not the ETF’s actual portfolio.
The differences between this fund and other ETFs may also have advantages. By keeping certain information about the fund secret, this fund may face less risk that other traders can predict or copy its investment strategy. This may improve the fund’s performance. If other traders are able to copy or predict the fund’s investment strategy, however, this may hurt the fund’s performance.
For additional information regarding the unique attributes and risks of the fund, see Proxy Portfolio Risk, Premium/Discount Risk, Trading Halt Risk, Authorized Participant Concentration Risk, Tracking Error Risk and Shares of the Fund May Trade at Prices Other Than NAV in the Principal Risks and Proxy Portfolio and Proxy Overlap sections of the prospectus and/or the Statement of Additional Information.