12 Examples of Smart Money

John Spacey, March 06, 2021

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.

Central Banks	Commercial Banks
ETFs	Endowment Funds
Hedge Funds	Insurance Companies
Investment Advisors (Institutional)	Investment Trusts
Market Makers	Mutual Funds
Pension Funds	Sovereign Wealth Funds

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.

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References

Schizas, 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.