Smart Beta: Too Good to be True?

The Journal of Financial Perspectives, Volume 3, Issue 2, July 2015

12 Pages Posted: 1 May 2015

See all articles by Bruce I. Jacobs, Ph.D.

Bruce I. Jacobs, Ph.D.

Jacobs Levy Equity Management

Kenneth N. Levy

Jacobs Levy Equity Management

Multiple version iconThere are 2 versions of this paper

Date Written: February 5, 2015

Abstract

Smart beta strategies promise to deliver market-beating returns with simplicity and low cost, but the reality is more complicated. Contrary to popular perception, smart beta strategies are neither passive nor well diversified. Nor can they be expected to perform consistently in all market environments. Perhaps most importantly, because of their focus on only a limited number of factors, smart beta strategies fail to exploit numerous potential profit opportunities.

Keywords: Smart beta, alternative indexes, equity indexes, passive investing, active investing, factors, return predictors, capitalization weighting, value, small-cap, momentum, low volatility, diversification, transparency, front running, factor crowding, portfolio rebalancing, portfolio management, fees

JEL Classification: G11

Suggested Citation

Jacobs, Bruce I. and Levy, Kenneth N., Smart Beta: Too Good to be True? (February 5, 2015). The Journal of Financial Perspectives, Volume 3, Issue 2, July 2015. Available at SSRN: https://ssrn.com/abstract=2567839

Bruce I. Jacobs (Contact Author)

Jacobs Levy Equity Management ( email )

100 Campus Drive
P.O. Box 650
Florham Park, NJ 07932-0650
United States
973-410-9222 (Phone)
973-410-9333 (Fax)

HOME PAGE: https://jlem.com/who-we-are#/nav/founders

Kenneth N. Levy

Jacobs Levy Equity Management ( email )

100 Campus Drive
P.O. Box 650
Florham Park, NJ 07932-0650
United States
973-410-9222 (Phone)
973-410-9333 (Fax)

HOME PAGE: https://jlem.com/who-we-are#/nav/founders

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