How Can "Smart Beta" Go Horribly Wrong?
How Can "Smart Beta" Go Horribly Wrong?
This is the first of a series on the future of smart beta.
Key Points
- Factor returns, net of changes in valuation levels, are much lower than recent performance suggests.
- Value-add can be structural, and thus reliably repeatable, or situational—a product of rising valuations—likely neither sustainable nor repeatable.
- Many investors are performance chasers who in pushing prices higher create valuation levels that inflate past performance, reduce potential future performance, and amplify the risk of mean reversion to historical . . .
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