Smart money is capital that is controlled by institutional investors. In many cases, funds actively managed by smart money underperforms passive funds. As such, institutional investors sometimes add negative value such that the term "smart" can be misleading whereby people may incorrectly assume that institutional insiders always outperform market averages. Nevertheless, people who control capital for financial institutions are surely knowledgeable, connected, experienced and have access to superior data sources and market technologies. As such, their market behavior is very different from that of individual investors, or dumb money. The following are common types of smart money.
Market pundits unconnected to large institutions may present themselves as smart money. To be clear, smart money implies that you work for institutions that manage significant capital. Smart money isn't an indication of intelligence, knowledge or past results.
Investment Advisors (Institutional)
Sovereign Wealth Funds
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ReferencesSchizas, Panagiotis. "Active ETFs and their performance vis-à-vis passive ETFs, mutual funds, and hedge funds." The Journal of Wealth Management 17.3 (2014): 84-98.Kouwenberg, Roy. "Do hedge funds add value to a passive portfolio? Correcting for non-normal returns and disappearing funds." Journal of Asset Management 3.4 (2003): 361-382.
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