The Value Add of Smart Beta
ETF Model SolutionTMs incorporates fundamental indexing (smart beta) strategies in our models where appropriate, including our Endowment Collective Fund, as we see potential to add value and enhance our risk-adjusted returns. The two founders of AQR Capital Management recently wrote piece about smart beta in which they categorize each of the types of approaches and describe how they each may be incorporated into a broad portfolio. The article provides an overview covering the concepts of fundamental indexing.
A few excerpts:
- “Smart beta takes well-established, quantitative investing styles or factors and implements them in a simple, transparent manner often, though not always, at lower fees than what we’ve seen in the past.”
- “Most smart-beta funds today are long-only equity strategies focused on one investment style or factor”
- “Smart Beta and style premia are active strategies in the sense of trying to outperform”
- “Many of the styles that work for predicting stock returns also work in other asset classes…..although the long-only smart-beta construct makes benefiting from ALL the places Smart Beta works quite difficult”
The entire article, titled Smart Beta: Not New, Not Beta, Still Awesome can be sourced on the AQR website.
