Value Investing: Smart Beta Versus Style Indexes

Journal of Index Investing, vol. 5, no. 1, Summer 2014

Posted: 8 Feb 2017

See all articles by Jason C. Hsu

Jason C. Hsu

Rayliant Global Advisors; Research Affiliates, LLC; University of California, Los Angeles - Anderson School of Business

Date Written: July 1, 2014

Abstract

The active shares of traditional value style indexes are dominated by industry bets. They also capture less than the entire value premium; because they weight 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.

Suggested Citation

Hsu, Jason C., Value Investing: Smart Beta Versus Style Indexes (July 1, 2014). Journal of Index Investing, vol. 5, no. 1, Summer 2014. Available at SSRN: https://ssrn.com/abstract=2913305

Jason C. Hsu (Contact Author)

Rayliant Global Advisors ( email )

Hong Kong

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://www.jasonhsu.org

University of California, Los Angeles - Anderson School of Business

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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