Smart Beta Strategy Selection – Pick The Right One!Research Affiliates
Shifting your smart beta strategy selection focus to craftsmanship and cost. Learn what questions to ask and how to make better-informed decisions when investing in smart beta.
Smart Beta Strategy Selection - Pick The Right One!
The Proliferation of Smart Beta Index Strategies
Has Led to ETF Product Proliferation
What to Do!?
- DO NOT chase performance
- We’ve all gotten burned before…
- DO choose robust Smart Beta strategies
- There are only a few!
- DO focus on product craftsmanship
- Reliably impactful to investment return!
Trend Chasing Is Costly
Most Product Providers Are Trend Chasers!
Cumulative Excess Return Before/After Index Launch
How do we know which Smart Beta strategies are robust?
- Those based on factors that have been vetted, replicated, and debated in top academic journals over decades.
- The strategy works across geographic regions.
- The strategy offers a robust premium across minor variations in the signal definition/construction.
- Trading costs do not erode the return premium offered by the corresponding factor.
Not All Popular Factor Strategies Are Robust
Valuations Are Predictive of Future Returns
Implicit Cost of Indexing Strategies