Factor Investing with Smart Beta Indices

13 Pages Posted: 29 Apr 2016 Last revised: 4 Aug 2016

See all articles by David Blitz

David Blitz

Robeco Asset Management - Quantitative Strategies

Date Written: August 2016

Abstract

The added value of smart beta indices is known to be explained by exposures to established factor premiums, but does that make these indices suitable for implementing a factor investing strategy? This paper finds that the amount of factor exposure provided by popular smart beta strategies differs considerably, as does their degree of focus on a single target factor. It also provides insight into how ‘quality’ and ‘high dividend’ indices relate to academic factors. Smart beta indices exhibit a performance that is in line with the amount of factor exposure provided, but it seems that they do not unlock the full potential offered by factor premiums. Altogether, these results imply that factor investing with smart beta indices is not as straightforward as one might think.

Keywords: factor investing, smart beta

JEL Classification: G11, G12, G14

Suggested Citation

Blitz, David, Factor Investing with Smart Beta Indices (August 2016). Available at SSRN: https://ssrn.com/abstract=2771621 or http://dx.doi.org/10.2139/ssrn.2771621

David Blitz (Contact Author)

Robeco Asset Management - Quantitative Strategies ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

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