Roundtable

Smart beta

Factoring in all possibilities Smart beta, alternative indexation, factor indices, alternative beta, systematic beta. Call it what you will, smart beta remains a hot topic as investors debate its merits as a strategy, alongside just how new or smart it is. As well as the multitude of labels, one of the difficulties for investors to get to […]

July 2016

Download PDF Roundtable
Factoring in all possibilities Smart beta, alternative indexation, factor indices, alternative beta, systematic beta. Call it what you will, smart beta remains a hot topic as investors debate its merits as a strategy, alongside just how new or smart it is.As well as the multitude of labels, one of the difficulties for investors to get to grips with has been the multitude of choice. There are thousands of products and indices, primarily in equities, but increasingly in fixed income and multi-asset, all offering subtly different weighting schemes. It’s no wonder much of the conversation has been around trying to define these terms, let alone invest in the strategies.Cutting through the noise it’s clear to see investors do like the concept. Research by Willis Towers Watson found its global clients allocated more than $8bn to smart beta in 2015, taking total exposure to $40bn – double the tally of 2012. Elsewhere, research conducted by FTSE Russell found 55% of investors in smart beta had an allocation of more than 10%. Just 12 months earlier, 40% of respondents had allocated 5% or less.Investors are attracted by the promise of low-cost systematic exposure to factors such as size, value and momentum or low volatility indices which offer respite from the much-maligned pure passive approach of market capitalisation-weighted indices and the pure active universe. Executed correctly, smart beta strategies can earn investors a premium through these factor exposures and the portfolio rebalancing required to maintain them.However, the term ‘smart’ also suggests that these strategies ‘just work’. This is obviously not always the case and in an ever-busier marketplace, investors need to ensure they select the right products and understand why they are doing so.

Kindly sponsored by:

Roundtable articles

Latest Roundtable Supplements View all >

View all

Subscribe

Subscribe to Our Newsletter and Magazine

Sign up to the portfolio institutional newsletter to receive a weekly update with our latest features, interviews, ESG content, opinion, roundtables and event invites. Institutional investors also qualify for a free-of-charge magazine subscription.

×