Value Investing: Smart Beta vs. Style Indices
Journal of Indexes, Forthcoming
7 Pages Posted: 7 Aug 2014
Date Written: August 7, 2014
The active shares of traditional value style indices are dominated by industry bets. They also capture less than the entire value premium because, weighting constituents on the basis of capitalization, they tend to hold large positions in overpriced stocks and small positions in underpriced (i.e., value) stocks. Smart beta strategies, in comparison, are better diversified, and they systematically buy low and sell high by periodically rebalancing to non-price related target weights. In addition to exploiting mean reversion in prices, smart beta strategies profit from mean reversion in the value premium by effectively implementing a dollar cost averaging program.
Keywords: Value Index, Smart Beta, Value Strategies
JEL Classification: G10
Suggested Citation: Suggested Citation