Smart Beta: Too Good to be True?
The Journal of Financial Perspectives, Volume 3, Issue 2, July 2015
12 Pages Posted: 1 May 2015
Date Written: February 5, 2015
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: Suggested Citation