Is Smart Beta State of the Art?
Posted: 4 Aug 2015
Date Written: May 7, 2015
Abstract
In remarks given at Wharton’s Jacobs Levy Equity Management Center for Quantitative Financial Research Spring Forum, Bruce Jacobs observes the parallels between smart beta and a popular, but ill-fated, investment strategy from the 1980s, portfolio insurance. He also notes that actual (rather than back-tested) smart beta portfolios have to date shown little evidence of significant risk-adjusted outperformance, and asserts that factors are best exploited in a dynamic, multifactor portfolio that employs numerous, proprietary factors simultaneously.
Keywords: Smart beta, factor investing, factor crashes, factor crowding, front running, dynamic, multifactor portfolio, portfolio insurance, ETFs, unintended exposures, liquidity, rebalancing, momentum, trend following, book-to-price, small-cap, value, low volatility, plan sponsor, fiduciary duty
JEL Classification: G11
Suggested Citation: Suggested Citation